[Federal Register Volume 62, Number 67 (Tuesday, April 8, 1997)]
[Rules and Regulations]
[Pages 16894-16976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8275]
[[Page 16893]]
_______________________________________________________________________
Part II
Department of the Treasury
Internal Revenue Service
26 CFR Part 54
Department of Labor
Pension and Welfare Benefits Administration
29 CFR Part 2590
Department of Health and Human Services
Health Care Financing Administration
45 CFR Subtitle A, Parts 144 and 146
45 CFR Part 148
_______________________________________________________________________
Health Insurance Portability for Group Health Plans; Interim Rules and
Proposed Rule
Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules
and Regulations
[[Page 16894]]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
[T.D. 8716]
RIN 1545-AV05
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
29 CFR Part 2590
RIN 1210-AA54
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
45 CFR Subtitle A, Parts 144 and 146
RIN 0938-AI08
Interim Rules for Health Insurance Portability for Group Health
Plans
AGENCIES: Internal Revenue Service, Department of the Treasury; Pension
and Welfare Benefits Administration, Department of Labor; Health Care
Financing Administration, Department of Health and Human Services.
ACTION: Interim rules with request for comments.
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SUMMARY: This document contains interim rules governing access,
portability and renewability requirements for group health plans and
issuers of health insurance coverage offered in connection with a group
health plan. The rules contained in this document implement changes
made to certain provisions of the Internal Revenue Code of 1986 (Code),
the Employee Retirement Income Security Act of 1974 (ERISA), and the
Public Health Service Act (PHS Act) enacted as part of the Health
Insurance Portability and Accountability Act of 1996 (HIPAA).
Interested persons are invited to submit comments on the interim rules
for consideration by the Department of Health and Human Services, the
Department of Labor, and the Department of the Treasury (Departments)
in developing final rules. The rules contained in this document are
being adopted in an interim basis to accommodate statutorily
established time frames intended to ensure that sponsors and
administrators of group health plans, participants and beneficiaries,
States, and issuers of group health insurance coverage have timely
guidance concerning compliance with the recently enacted requirements
of HIPAA.
DATES: Effective date: These interim rules are effective on June 7,
1997.
Comment dates: Written comments on these interim rules are invited
and must be received by the Departments on or before July 7, 1997.
Applicability dates: For group health plans maintained pursuant to
one or more collective bargaining agreements ratified before August 21,
1996, the rules (other than the certification requirements) do not
apply to plan years beginning before the later of July 1, 1997 or the
date on which the last collective bargaining agreement relating to the
plan terminates without regard to any extension agreed to after August
21, 1996.
The rules implementing the certification provisions do not require
any action to be taken before June 1, 1997, although certain
certification requirements apply to periods of coverage and events that
occur after June 30, 1996. The certification requirement for events
that occurred on or after October 1, 1996 and before June 1, 1997 may
be satisfied using an optional notice described in this preamble.
Information collection: Affected parties do not have to comply with
the information collection requirements in these interim rules until
the Departments publish in the Federal Register the control numbers
assigned by the Office of Management and Budget (OMB) to these
information collection requirements. Publication of the control numbers
notifies the public that OMB has approved these information collection
requirements under the Paperwork Reduction Act of 1995. The Departments
have asked for OMB clearance as soon as possible, and OMB approval is
anticipated by the applicable effective date.
ADDRESSES: Written comments should be submitted with a signed original
and three copies to any of the addresses specified below. All comments
will be available for public inspection and copying in their entirety.
Interested persons are invited to submit written comments on these
interim rules to:
Health Care Financing Administration, Department of Health and Human
Services, Attention: [BPD-890-IFC], P.O. Box 26688, Baltimore, Maryland
21207
Pension and Welfare Benefits Administration, U.S. Department of Labor,
Room N-5669, 200 Constitution Avenue, NW., Washington, DC 20210.
Attention: Interim Portability and Renewability Rules
CC:DOM:CORP:T:R (REG-253578-96), Room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington, DC 20044
Alternatively, comments may be submitted electronically via the
Internet by selecting the ``Tax Regs'' option on the IRS Home Page, or
by submitting comments directly to the IRS Internet site at http://
www.irs.ustreas.gov/tax__regs/comments.html
In the alternative:
Written comments for the Department of Health and Human Services
may be hand delivered from 8:30 a.m. to 5:00 p.m. to:
Room 309-G, Hubert Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201, or
Room C5-09-26, 7500 Security Boulevard, Baltimore, Maryland 21244-1850
Written comments for the Department of Labor may be hand delivered
from 8:15 a.m. to 4:45 p.m. to the above address for the Pension and
Welfare Benefits Administration, U.S. Department of Labor.
Written comments for the Internal Revenue Service may be hand
delivered between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:T:R(REG-253578-96), Courier's Desk, Internal Revenue
Service, room 5228, 1111 Constitution Avenue, NW., Washington, DC.
All submissions to the Department of Health and Human Services will
be open to public inspection as they are received, generally beginning
three weeks after publication, in room 309-G of the Department of
Health and Human Services offices at 200 Independence Avenue, SW.,
Washington, DC, from 8:30 a.m. to 5:00 p.m. All submissions to the
Department of Labor will be open to public inspection at the Public
Documents Room, Pension and Welfare Benefits Administration, U.S.
Department of Labor, Room N-5638, 200 Constitution Avenue NW.,
Washington, DC, from 8:30 a.m. to 5:30 p.m. All submissions to the
Internal Revenue Service will be open to public inspection and copying
in room 1621, 1111 Constitution Avenue, NW., Washington, DC, from 9:00
a.m. to 4:00 p.m.
FOR FURTHER INFORMATION CONTACT: Julie Walton, Health Care Financing
Administration, at 410-786-1565; Mark Connor, Office of Regulations and
Interpretations, Pension and Welfare Benefits Administration,
Department of Labor, at 202-219-4377; Diane Pedulla, Plan Benefits
Security Division, Office of the Solicitor, Department of Labor, at
202-219-4377; or Russ Weinheimer, Internal Revenue Service, at 202-622-
[[Page 16895]]
4695. These are not toll-free numbers.
Customer Service Information: Individuals interested in obtaining a
copy of the Department of Labor's booklet entitled ``Questions and
Answers: Recent Changes in Health Care Law'' may obtain a copy by
calling the following toll-free number 1-800-998-7542.
SUPPLEMENTARY INFORMATION:
A. Background
The Health Insurance Portability and Accountability Act of 1996
(HIPAA), Pub. L. 104-191, was enacted on August 21, 1996. HIPAA amended
the Public Health Service Act (PHS Act), the Employee Retirement Income
Security Act of 1974 (ERISA), and the Internal Revenue Code of 1986
(Code) to provide for, among other things, improved portability and
continuity of health insurance coverage in the group and individual
insurance markets, and group health plan coverage provided in
connection with employment. Sections 102(c)(4), 101(g)(4), and
401(c)(4) of HIPAA require the Secretaries of Health and Human
Services, Labor, and the Treasury, each to issue regulations necessary
to carry out these provisions.\1\
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\1\ In addition to the group market regulations in this
document, the Department of the Treasury is issuing a proposed
Treasury regulation that cross-references these regulations and the
Department of Labor is issuing an interim regulation relating to
certain disclosure requirements under HIPAA. Each of these
regulations appears separately in this issue of the Federal
Register.
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B. Overview of HIPAA and the Interim Rules
Area of Guidance. The access, portability, and renewability
provisions of HIPAA affect group health plans and health insurance
issuers. Group health plans are generally plans sponsored by employers
or employee organizations or both. These HIPAA provisions are designed
to improve the availability and portability of health coverage by:
Limiting exclusions for preexisting medical conditions;
Providing credit for prior health coverage and a process
for transmitting certificates and other information concerning prior
coverage to a new group health plan or issuer;
Providing new rights that allow individuals to enroll for
health coverage when they lose other health coverage or have a new
dependent;
Prohibiting discrimination in enrollment and premiums
against employees and their dependents based on health status;
Guaranteeing availability of health insurance coverage for
small employers and renewability of health insurance coverage in both
the small and large group markets; and
Preserving, through narrow preemption provisions, the
States' traditional role in regulating health insurance, including
State flexibility to provide greater protections.
The regulations provide guidance with respect to these provisions.
In implementing these new rules, the regulations provide protections
for individuals seeking health coverage while minimizing burdens on
employers and insurers.
Reducing Burdens. The regulations reduce burdens by:
Providing for a simple model certificate that can be used
by plans and issuers;
Reducing unnecessary duplication in the issuance of
certificates;
Including flexible rules for dependents to receive the
coverage information they need;
Allowing coverage information to be provided by telephone
if all parties agree;
Relieving plans and issuers of the need to report the
starting date of coverage and waiting period information where a
certificate shows 18 months of credible coverage;
Including a transition rule permitting plans and issuers
to give individuals a notice in lieu of a certificate where coverage
ended before June 1, 1997; and
Providing for a model notice that may be used to satisfy
the transition rule and a model notice for information relating to
categories of benefits provided under a plan.
Implementing Individual Protections. The regulations protect and
assist participants and their dependents by:
Ensuring that individuals are notified of the length of
time that a preexisting condition exclusion clause in any new health
plan may apply to them after taking into account their prior creditable
coverage;
Ensuring that individuals are notified of their rights to
special enrollment under a plan;
Permitting individuals to obtain a certificate before
coverage under a plan ceases; and
Creating practical ways for individuals to demonstrate
creditable coverage to a new plan (where the individual's prior plan
fails to provide the certificate).
C. Overview of Coordination of Group Market Regulation Among
Departments
The HIPAA portability provisions relating to group health plans and
health insurance coverage offered in connection with group health plans
(referred to below as the ``group market'' provisions) are set forth
under a new Part A of Title XXVII of the PHS Act, a new Part 7 of
Subtitle B of Title I of ERISA, and a new Subtitle K of the Internal
Revenue Code. HIPAA also added provisions governing insurance in the
individual market that are contained only in the PHS Act, and thus are
not within the regulatory jurisdiction of the Department of Labor or
the Department of the Treasury. (These portability provisions are
referred to below as the ``individual market'' provisions.)
In general, the group market provisions create concurrent
jurisdiction for the Secretaries of Health and Human Services, Labor,
and the Treasury. The provisions include similar rules relating to
preexisting conditions exclusions, special enrollment rights, and
prohibition of discrimination against individuals based on health
status-related factors. (These group market provisions are referred to
below as the ``shared group market'' provisions.) Accordingly, the
three Departments share regulatory responsibility for most, but not
all, of the group market provisions.
The shared group market provisions are substantially similar,
except as follows:
The shared group market provisions in the PHS Act apply
generally to insurance issuers that offer health insurance in
connection with group health plans (subject to an exception that may
apply for plans with fewer than two participants who are current
employees (``very small plans'')), and certain State and local
government plans. Only the PHS Act contains group market provisions
relating to availability and renewability of health insurance.\2\ In
addition, the PHS Act imposes certification requirements on certain
federal entities not otherwise subject to the HIPAA portability
provisions. Further, the States, in the first instance, will enforce
the PHS Act with respect to issuers. In addition, individuals may be
able to pursue claims through State mechanisms. Only if a State does
not substantially enforce any provisions under its insurance laws, will
the Department of Health and Human Services enforce the provisions,
through the imposition of civil money penalties. (The group market
provisions relating to guaranteed renewability for multiemployer plans
and multiple employer welfare arrangements
[[Page 16896]]
(MEWAs) are in ERISA and the Internal Revenue Code, but not the PHS
Act.)
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\2\ The PHS Act does not include requirements on availability of
insurance for employers in the large group market. Under section
2711(b)(3) of the PHS Act, however, the General Accounting Office
(GAO) is to report to Congress on such availability in 1998.
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The ERISA shared group market provisions apply generally
to all group health plans other than governmental plans, church plans,
very small plans, and certain other plans. The shared group market
provisions of ERISA also apply to health insurance issuers that offer
health insurance in connection with such group health plans. Generally,
the Secretary of Labor enforces the Provisions of HIPAA that amend
ERISA, except that no enforcement action may be taken by the Secretary
against issuers relating to the new shared group market provisions in
part 7 of ERISA. However, individuals may generally pursue actions
against issuers under ERISA and, in some circumstances, under State
laws.
The shared group market provisions in the Internal Revenue
Code generally apply to all group health plans other than governmental
plans and very small plans, but not to health insurance issuers. A
taxpayer that fails to comply with these provisions may be subject to
an excise tax under section 4980D of the Code. (The group market
provisions relating to preemption and affiliation periods for HMOs are
in the PHS Act and ERISA, but not in the Internal Revenue Code.)
The regulation being issued today by the Secretaries of Health and
Human Services, Labor, and the Treasury have been developed on a
coordinated basis by the Departments. Except to the extent needed to
reflect the statutory differences described above, the shared group
market provisions in these regulations of each Department are
substantively identical. However, there are certain nonsubstantive
differences. The PHS Act regulations are numbered and organized
differently. Also, there are differences in the regulations that are
necessary because of statutory provisions that are not common to all
three Departments (in the definitions sections, for example). Further,
the regulations reflect certain stylistic differences in language and
structure to conform to conventions used by a particular Department.
These differences have been minimized and any differences in wording
are not intended to create any substantive difference, so that these
regulations will have the same effect with respect to overlapping
statutory provisions, as required by section 104 of HIPAA.
D. Special Information Concerning State Insurance Law
For purposes of the PHS Act and sections 144 through 148 in the PHS
Act regulations, all health insurance coverage in a State generally is
sold in one of two markets: the group market (See section 146) and the
individual market (see section 148). The group market is further
divided into the large group market and the small group market. Section
146 of the PHS Act regulations applies the group market provisions only
to insurance sold to group health plans (which are generally plans
sponsored by employers or employee organizations or both), regardless
of whether State law provides otherwise. State law may expand the
definition of the small group market to include certain coverage that,
under the federal law, would otherwise be considered coverage in the
large group market or the individual market.
The protections provided in the PHS Act to particular individuals
and employers are different depending on whether the coverage involved
is obtained in the small group market, the large group market, or the
individual market. Small employers are guaranteed availability of
insurance coverage sold in the small group market under the PHS Act.
Small and large employers are guaranteed the right to renew their group
coverage under the PHS Act, subject to certain exceptions. Eligible
individuals are guaranteed availability of coverage sold in the
individual market under the PHS Act, and all coverage in the individual
market must be guaranteed renewable under the PHS Act.
Coverage that is provided to associations, but is not related to
employment (so that the coverage is not in connection with a group
health plan), is not coverage in the group market under HIPAA. This
coverage is instead coverage in the individual market under the PHS
Act, regardless of whether it is considered group coverage under State
law.
E. Discussion of the Shared Group Market Provisions in the
Regulations
The most significant items relating to the shared group market in
these regulations are discussed in detail below.
Definitions--26 CFR 54.9801-2, 29 CFR 2590.701-2, 45 CFR 144.103
This section provides most of the definitions used in the
regulations implementing the provisions of HIPAA that were added to the
PHS Act, ERISA, and the Code, relating to the group market.\3\ The
definitions in this section of the regulations include both statutory
definitions provided in HIPAA, as well as certain others used in the
regulations.
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\3\ The regulations for the PHS Act also contain certain
definitions relating to those provisions added under the PHS Act
regarding the individual market, in order to create a single,
comprehensive reference for the definitions necessary under the PHS
Act regulations.
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Limitation on Preexisting Condition Exclusion Period--26 CFR 54.9801-3,
29 CFR 2590.71-3, 45 CFR 146.111
Definition of Preexisting Condition Exclusion
A preexisting condition exclusion is defined broadly to be any
limitation or exclusion of benefits based on the fact the condition was
present before the first day of coverage, whether or not any medical
advice, diagnosis, care, or treatment was recommended or received
before that day. HIPAA imposes certain limitations (described below) on
the use of such an exclusion in the group market (and also uses this
definition for purposes of the individual market rules, under which no
preexisting condition exclusion is permitted to be imposed on an
eligible individual). HIPAA's broad definition of a preexisting
condition exclusion is at variance with some State laws and regulations
because the relevant National Association of Insurance Commissioners
(NAIC) models, on which many State laws are based, have imposed
limitations on coverage for preexisting conditions without use of such
a definition.
New Limitations on Preexisting Condition Exclusions. Paragraph (a)
of this section \4\ of the regulations describes the limitations on the
preexisting condition exclusion period. A group health plan, and a
health insurance issuer offering group health insurance coverage, is
permitted to impose a preexisting condition exclusion with respect to a
participant or beneficiary only if the following conditions are met:
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\4\ References to paragraphs of a section refer to paragraphs of
each regulation section identified in the heading. For example, this
reference is to paragraph (a) in each of 45 CFR 146.111, 29 CFR
2590.701-3, and 26 CFR 54.9801-3.
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1. 6-month look-back rule. The preexisting condition exclusion must
relate to a condition (whether physical or mental, and regardless of
the cause of the condition) for which medical advice, diagnosis, care,
or treatment was recommended or received within the 6-month period
ending on the enrollment date. For these purposes, genetic information
is not a condition.\5\ In order
[[Page 16897]]
to be taken into account, the medical advice, diagnosis, care, or
treatment must have been recommended or received from an individual
licensed or similarly authorized to provide such services under State
law and operating within the scope of practice authorized by the State
law. Under the new HIPAA standard, a plan would generally determine
that an individual has a preexisting condition through medical records
(such as diagnosis codes on bills, a physician's notes of a visit or
telephone call, pharmacy prescription records, HMO encounter data, or
other records indicating that medical services were actually
recommended or received during the 6-month look-back period). The
``prudent person'' standard of some State laws (under which a condition
is taken into account if a prudent person would have sought care
whether or not care is actually received) no longer may be used to
determine a preexisting condition.
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\5\ The definition of genetic information in the regulations was
developed taking into account hearing testimony related to genetic
information given in connection with Senate Report 104-156, other
legislative initiatives, and public comments (including those
submitted in response to the request for information published by
the Departments on December 30, 1996).
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This 6-month ``look-back'' period is based on the 6-month
``anniversary date'' of the enrollment date. As a result, an individual
whose enrollment date is August 1, 1998 has a 6-month look-back period
from February 1, 1998 through July 31, 1998.
2. Length of preexisting condition exclusion period. The exclusion
period cannot extend for more than 12 months (18 months for late
enrollees) after the enrollment date. the 12- or 18-month ``look-
forward'' period is also based on the anniversary date of the
enrollment date. A late enrollee is defined as an individual who
enrolls in a plan at a time other than at the first time the individual
is eligible to enroll or during a special enrollment period (described
below). If an individual loses eligibility for coverage as a result of
terminating employment or a general suspension of coverage under the
plan, then upon becoming eligible again due to resumption of employment
or due to resumption of plan coverage, only the most recent period of
eligibility is considered for purposes of determining whether the
individual is a late enrollee.
3. Reduction of preexisting condition exclusion period by prior
coverage. In general, the preexisting condition exclusion period is
reduced by the individual's days of creditable coverage \6\ as of the
enrollment date. Creditable coverage is defined as coverage of an
individual from a wide range of specified sources, including group
health plans, health insurance coverage, Medicare, and Medicaid.
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\6\ The phrase ``days of creditable coverage'' is used instead
of the statutory phrase ``aggregate periods of creditable coverage''
for administrative ease in the calculation of creditable coverage.
Use of days of creditable coverage also conforms to the practice of
many States for crediting prior coverage under pre-HIPAA small group
market reforms.
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Definition of Enrollment Date. The limitations on preexisting
condition exclusions are measured from an individual's ``enrollment
date.'' The enrollment date is defined as the first day of coverage or,
if there is a waiting period, the first day of the waiting period
(typically the date employment begins).
The term ``first day of coverage'' is used in the regulations in
place of the term ``date of enrollment'' in the statute, such as in the
definitions of the terms ``preexisting condition exclusion'' and
``enrollment date.'' This is intended to clarify the difference between
the statutory terms ``date of enrollment'' and ``enrollment date''
(which have no difference in common useage).
The term ``waiting period'' generally refers to the period in which
there is a delay between the first day of employment and the first day
of coverage under the plan. Accordingly, because the preexisting
condition exclusion period runs from the enrollment date, any waiting
period would run concurrently with any preexisting condition exclusion
period. Further:
The enrollment date for a late enrollee or anyone who
enrolls on a special enrollment date (see the section on special
enrollment periods below) is the first date of coverage. Thus, the time
between the date a late enrollee or special enrollee first becomes
eligible for enrollment under the plan and the first day of coverage is
not treated as a waiting period.
Because the 6-month look-back limitation runs from the
beginning of any applicable waiting period, the current practice of
some plans that require physical examinations prior to commencement of
coverage for the purpose of identifying preexisting conditions may be
affected. If the examination is conducted during the waiting period
(after employment begins and before enrollment), rather than before
employment begins, a plan may not exclude coverage for any condition
identified in the examination (unless, independent of the examination,
medical advice, diagnosis, care, or treatment was in fact recommended
or received for the condition during the 6-month look-back period). The
use of such examinations for other purposes, such as worker safety, is
not affected.\7\
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\7\ However, to avoid violating the Americans with Disabilities
Act, Pub. L. 101-336, as amended by Pub. L. 102-166, the examination
should generally be conducted only after the employer has offered
employment to the individual.
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Elimination of Preexisting Condition Exclusion for Pregnancy and
for Certain Children. A preexisting condition exclusion cannot apply to
pregnancy. In addition, a preexisting condition exclusion period cannot
be applied to a newborn, an adopted child under age 18, or a child
placed for adoption under age 18, if the child becomes covered within
30 days of birth, adoption, or placement for adoption. This exception
does not apply after the child has a significant break in coverage (63
or more consecutive days). (An example in paragraph (b)(1) of the
regulations illustrates these rules.)
Rules Relating to Creditable Coverage--26 CFR 54.9801-4, 29 CFR
2590.701-4, 45 CFR 146.113
As noted above, a plan or issuer that imposes a preexisting
condition exclusion must reduce the length of the exclusion by an
individual's creditable coverage. This section defines the term
``creditable coverage'' and sets forth the rules for how creditable
coverage is applied to reduce such an exclusion period.
Creditable coverage includes health insurance coverage and other
health coverage, such as coverage under group health plans (whether or
not provided through an issuer), Medicaid, Medicare, and public health
plans, as well as other types of coverage set forth in HIPAA and the
regulations. Comments are requested on whether the definition of a
public health plan should include the public health systems of other
countries.
Under the definition of creditable coverage, all forms of health
insurance coverage are included, whether in the individual market or
group market, and whether the coverage is short-term, limited-duration
coverage or other coverage for benefits for medical care for which no
certificate of creditable coverage is required. Creditable coverage
does not include coverage consisting solely of excepted benefits as
defined in the regulations and described below.\8\
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\8\ However, if an individual has coverage of excepted benefits
in addition to other forms of creditable coverage, coverage of
excepted benefits is creditable coverage. This would make a
difference only if a plan or issuer uses the alternative method of
determining creditable coverage (described below) with respect to a
category that includes excepted benefits. For example, coverage of
excepted benefits such as limited vision or limited dental benefits,
when offered in combination with other creditable coverage, may be
used to offset a preexisting condition exclusion period for a
category that includes those benefits under the alternative method
in paragraph (c).
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Under paragraph (a)(3) of this section of the regulation, a group
health plan or health insurance issuer offering group
[[Page 16898]]
health insurance coverage may determine the amount of creditable
coverage of an individual for purposes of reducing the period of a
preexisting condition exclusion by using either the standard method
described in paragraph (b) or the alternative method described in
paragraph (c).
Standard Method
1. Counting. Under the standard method, the plan or issuer
determines the amount of an individual's creditable coverage by
determining all days during which the individual had one or more types
of creditable coverage. This determination is made without regard to
the specific benefits included in the coverage. If creditable coverage
is derived from more than one source on a particular day, all of the
creditable coverage that the individual had on that day is counted as
one day of creditable coverage.
2. Significant break in coverage. Days of creditable coverage that
occur before a significant break in coverage are not required to be
counted by the plan or issuer in reducing a preexisting condition
exclusion. A significant break in coverage means a period of 63
consecutive days during all of which the individual did not have any
creditable coverage.
a. Waiting and affiliation periods. Waiting periods and affiliation
periods, as defined in the regulation, are not taken into account in
determining a significant break in coverage. This is the case
regardless of whether the person ultimately fails to obtain coverage
under the plan (such as, where termination of employment occurs before
coverage begins). However, days in a waiting period or affiliation
period are not counted as creditable coverage.
The regulations specify that the period between the date an
individual files a substantially complete application for coverage in
the individual market and the effective date of such coverage is a
waiting period, so that the period is not taken into account in
determining a significant break in coverage. In this way, an
application processing delay or omission of details on a form would not
cause an applicant to incur a significant break in coverage, which
could adversely affect an individual who seeks coverage under a group
health plan after purchasing coverage in the individual market.
However, the waiting period for purchase of an individual policy
tolls a break in coverage only if the filing of the application for the
individual market insurance actually results in purchase of the
coverage by the individual. (See Examples 7 and 8 in paragraph
(b)(2)(iv)). By contrast, days in a waiting period for coverage under a
group health plan toll a significant break in coverage regardless of
whether coverage under the plan is ultimately obtained. (See Example
6.) The rule regarding the individual market prevents an individual
from avoiding a significant break in coverage by repeatedly submitting
applications to individual market issuers without ever purchasing
coverage. This rule responds to comments sent to the Departments in
response to the December 30, 1996 request for public comments. The
comments asked for clear rules on when a significant break is tolled in
the case of an application for individual market insurance.
Issuers of health insurance coverage in the individual market are
subject to the same certification requirements that apply to plans and
issuers in the group market. Therefore, issuers in the individual
market must provide individuals with certificates that reflect
information regarding the beginning of the waiting period (the date of
application), the effective date of coverage, and the date coverage
ends. This will assist people with coverage in the individual market
who later become covered by a group health plan in demonstrating their
creditable coverage to the plan or issuer in the group market.
b. Effect of State insurance law. HIPAA provides that the
significant break in coverage rule does not preempt State insurance
laws that provide longer periods than 63 days for a break in coverage.
(The preemption provisions are described more fully below.)
Accordingly, while federal law may allow a plan to disregard prior
coverage before a 63-day significant break in coverage, an issuer may
be required to take such coverage into account in order to comply with
State insurance law. As a result, application of the break rules can
vary between issuers located in different States. Similarly, the break
rules may vary between insured plans and self-insured plans (which are
not subject to State insurance laws) within a State, as well as between
the insured and self-insured portions of a single plan. As illustrated
by Example 3 in paragraph (b)(2)(iv), the laws of the State applicable
to the insurance policy that has the preexisting condition exclusion
are determinative of which break rule applies.
Alternative Method. Under the alternative method of counting
creditable coverage, the plan or issuer determines the amount of an
individual's creditable coverage for any of five identified categories
of benefits. Those categories are coverage for mental health, substance
abuse treatment, prescription drugs, dental care, and vision care. The
plan or issuer may use the alternative method for any or all of the
categories and may apply a different preexisting condition exclusion
period with respect to each category (as well as to coverage not within
a category). The creditable coverage determined for a category of
benefits applies only for purposes of reducing the preexisting
condition exclusion period with respect to that category. The standard
method is used to determine an individual's creditable coverage for
benefits that are not within any category for which the alternative
method is being used. Disclosure statements concerning the plan must
indicate that the alternative method is being used, and this disclosure
must also be given to each enrollee at the time of enrollment. These
statements must include a description of the effect of using the
alternative method. Any issuer in the group market must provide similar
statements to each employer at the time of offer or sale of the
coverage.
For purposes of reducing the preexisting condition exclusion period
under the alternative method, the plan or issuer determines under the
standard method the amount of the individual's creditable coverage that
can be counted, up to a total of 365 days of the most recent creditable
coverage of the individual (546 days for a late enrollee). The period
of this creditable coverage is referred to as the ``determination
period.'' The plan or issuer counts all days of coverage within the
applicable category that occurred during the determination period
(without regard to any significant breaks in that category of
coverage). Those days reduce the preexisting condition exclusion for
coverage within that category.
The regulations do not provide detailed definitions of the benefit
categories. Comments are invited on whether additional guidance is
needed.
The regulations under the alternative method of counting creditable
coverage do not include a category relating to significant differences
in deductible amounts. Commentators expressed concerns about adverse
selection if individuals can change from a high deductible plan when
they become ill and obtain ``first dollar'' coverage from an HMO or
other issuer that provides broad, comprehensive care with only low
deductibles or copayments.\9\ However, it is unclear how such a
[[Page 16899]]
category would be defined or applied. Accordingly, the Departments
solicit comments on this issue.
---------------------------------------------------------------------------
\9\ See also the discussion below under the heading ``HMO
Affiliation as Alternative to Preexisting Condition Exclusion.''
---------------------------------------------------------------------------
Certificates and Disclosure of Previous Coverage--26 CFR 54.9801-5, 29
CFR 2590.701-5, 45 CFR 146.115
This section of the regulations sets forth guidance regarding the
certification requirements and other requirements concerning disclosure
of information relating to prior creditable coverage. The provision of
a certificate and other disclosures of information are intended to
enable an individual to establish his or her prior creditable coverage
for purposes of reducing any preexisting condition exclusion imposed on
the individual by any subsequent group health plan coverage.
Form of Certificate. In general, the certificate must be provided
in writing, including any form approved by the Secretaries as a
writing. In certain circumstances, where the individual requests that
the certificate be sent to another plan or issuer instead of to the
individual, and the other plan or issuer agrees, the certification
information may be provided by other means, such as by telephone. In
some States, issuers transfer coverage information by telephone.
Comments are requested as to whether, and under what conditions, other
methods of transmitting certification information (including electronic
communication) should be permitted in future guidance.
Information in Certificate. Paragraph (a)(3) of this section of the
regulations sets forth the information that must be included in a
certificate. The regulations allow a plan or issuer in an appropriate
case simply to state in the certificate that the individual has at
least 18 months of creditable coverage that was not interrupted by a
significant break in coverage and to indicate the date coverage ended.
(A certificate would never have to reflect coverage in excess of 18
months without a 63-day break because this is the maximum creditable
coverage that an individual could need under the preexisting condition
exclusion rules and the rules for access to the individual market.) In
any other case, the certificate must disclose (1) the date any waiting
or affiliation period began,\10\ (2) the date coverage began, and (3)
the date coverage ended (or indicate if coverage is continuing).\11\
For individuals with fewer than 18 months of coverage without a
significant break in coverage, the information about specific dates is
essential in order for a subsequent plan or issuer in the group or
individual market to be able to apply the break rules, especially in
light of the possibility that an individual may have other coverage
from various sources and the potential differences among State break
rules (described above).
---------------------------------------------------------------------------
\10\ Because the ending date for a waiting or affiliation period
will always be the date coverage begins, the ending date does not
have to be separately stated in a certificate.
\11\ These dates would include any period of COBRA continuation
coverage. A COBRA continuation coverage period does not have to be
separately identified.
---------------------------------------------------------------------------
Certification Events and Timing. Paragraph (a)(5) describes the
rights of participants and dependents to receive certificates. In
general, individuals have the right to receive a certificate
automatically (an ``automatic certificate'') when they lose coverage
under a plan and when they have a right to elect COBRA continuation
coverage. The certificate must be furnished within the time periods
described below:
First, for an individual who is a qualified beneficiary
entitled to elect COBRA continuation coverage, the certificate is
required to be provided no later than when a notice is required to be
provided for a qualifying event under COBRA.
Second, for an individual who loses coverage under a group
health plan and who is not a qualified beneficiary entitled to elect
COBRA continuation coverage, the certificate is required to be provided
within a reasonable time after the coverage ceases. (Typically, this
would apply to small employers' plans that are not subject to COBRA.)
This requirement is satisfied if the certificate is provided by the
time a notice is required to be provided under a State program similar
to COBRA.
Third, for an individual who is a qualified beneficiary
and has elected COBRA continuation coverage, the certificate is
required to be provided within a reasonable time after either cessation
of COBRA continuation coverage or, if applicable, after the expiration
of any grace period for the payment of COBRA premiums.
In each of these three events, the regulations require the certificate
to reflect only the most recent period of continuous coverage under the
plan.
Under COBRA, multiemployer plans may provide notices within such
longer period of time as provided for such notices under the terms of
the plan. Under the general certification timing rule described above,
multiemployer plans may use the same extended time period for providing
certificates. Comments are requested on how this may affect a
multiemployer plan and its participants and their families.
A certificate may be mailed by first class mail to the
participant's last known address. A certificate for a participant's
spouse with an address different from the participant's is to be sent
to the spouse's address. A certificate may provide information with
respect to both a participant and the participant's dependents if the
information is identical for each individual, or if the information is
not identical, a certificate may provide information sufficient to
satisfy the requirements of the regulations with respect to each
individual on one document.
A certificate is also required to be provided upon the request of,
or on behalf of, an individual (whether the individual is a
participant, the participant's spouse, or any other dependent) if the
request is made within 24 months after the individual loses coverage
under the plan. The certificate is required to be provided at the
earliest time that the plan or issuer, acting in a reasonable and
prompt fashion, can provide the certificate. In this case, the
certificate reflects each period of continuous coverage ending within
the 24 months prior to the date of request.\12\
---------------------------------------------------------------------------
\12\ For example, for participation who has had a number of
interruptions in coverage, a requested certificate could consist of
copies of all of the automatic certificates that were previously
provided to the individual for each of these periods.
---------------------------------------------------------------------------
Responsibilities of Plans and Issuers. Paragraph (a)(1) clarifies
the statutory obligation of plans and issuers to provide certificates.
The statutory obligation to furnish a written certificate of
information regarding creditable coverage is imposed on both the group
health plan and the health insurance issuer offering group health
insurance coverage. This dual obligation was the subject of many of the
comments received by the three Departments in response to the December
30, 1996 request for public comments published in the Federal Register.
Concerns were raised about superfluous, duplicate certificates being
issued and the potential responsibility of issuers for reporting on an
individual's coverage under the plan after one issuer has been replaced
by another.
Paragraph (a)(1) addresses these concerns by providing that the
obligation to furnish a certificate is imposed on both the plan and
each health insurance issuer that provides group health insurance
coverage under the plan, subject to four exceptions.
First, paragraph (a)(1)(ii) provides that an entity required to
provide a certificate is deemed to have satisfied this requirement to
the extent that any other party provides the certificate and the
certificate discloses the creditable coverage (including the waiting
period
[[Page 16900]]
information) that was to be provided by the entity.
Second, paragraph (a)(1)(iii) provides that a plan is deemed to
have satisfied its obligation if there is an agreement between an
issuer and a plan under which the issuer agrees to provide certificates
for individuals covered under the plan.
Third, paragraph (a)(1)(iv)(A) provides that an issuer is not
required to provide any coverage information regarding coverage periods
for which it was not responsible.
Fourth, paragraph (a)(1)(iv)(B) provides that if an individual
switches from one issuer to another option allowed under the plan, or
an issuer is replaced by another before an individual's coverage in the
plan ceases, the first issuer is required to provide sufficient
information to the plan (or to another party designated by the plan),
so that when the individual leaves the plan, a certificate can be
provided that includes the period of coverage under the policy of the
first issuer. In this situation, no certificate is required to be
provided to the individual, but the issuer must also cooperate with the
plan by providing any information that may be requested later pursuant
to the alternative method. (This rule will reduce unnecessary and
potentially misleading information from being received while the
individual's coverage under the plan is uninterrupted.) An issuer may
presume that it is the final issuer for an individual if the
individual's coverage under the policy ends at a time other than in
connection with the plan's open season.
Other Entities Issuing Certificates. Paragraph (a)(6) identifies
the various statutory authorities that create responsibility for other
entities (that are not subject to a particular Department's
regulations) to provide certificates. As described above, there are
forms of creditable coverage other than coverage provided by group
health plans and health insurance coverage offered in connection with a
group health plan. Accordingly, individuals who leave coverage provided
by any such other entity are entitled to have that coverage counted by
a group health plan and may in many cases receive certificates for
their creditable coverage. This information is included in the
regulations because plans that impose a preexisting condition exclusion
may find it helpful to know when creditable coverage will be provable
through presentation of a certificate and when other forms of
documentation or attestation may be needed.
In cases where certifications are provided by entities not subject
to ERISA's requirements, such as Medicaid, the Indian Health Service,
and CHAMPUS, certain adjustments in the certification rules may be
appropriate. The regulations do not address how the certification
process applies to these other programs. Comments are requested on how
the certification requirements may be adapted to entities responsible
for providing this coverage.
Dependent Coverage Information. Dependents are entitled to a
written certificate of creditable coverage. Concerns were raised in
comments received from the public regarding the certification of
dependent coverage where information regarding dependents of
participants in plans was not available. Plans and issuers, the
commenters stated, often do not know the existence of dependents or
their coverage periods until claims are filed. To address these
concerns, the regulations have adopted two special rules.
First, under a transition rule that lasts through June 30, 1998, a
plan or issuer may satisfy its obligation to provide a written
certificate regarding the coverage of a dependent of a participant by
providing the name of the participant covered by the plan and
specifying the type of coverage provided in the certificate (such as
family coverage or employee-plus-spouse coverage). However, if asked to
provide a certificate relating to a dependent, the plan must make
reasonable efforts to obtain and provide the name of the dependent.
This rule will provide plans and issuers with a transition period to
update their data systems to include information on dependents.
Second, the regulations include a special rule regarding dependent
coverage that is not limited to the transition period. Under this rule,
a plan or issuer must make a reasonable effort to collect the necessary
information for dependents and include it on the certificate. However,
under this special rule, an automatic certificate is not required to be
issued until the plan or issuer knows (or, making reasonable efforts,
should know) of the dependent's cessation of coverage. This information
can be collected annually (during open enrollment).
Under the transition rule and the special rule, an individual may
use the provisions described below to establish creditable coverage
(and waiting and affiliation period information).
Information for Alternative Method of Counting Creditable Coverage.
Following receipt of the certificate, an entity that uses the
alternative method of counting creditable coverage may request that the
entity that issued the certificate disclose additional information in
order for the requesting entity to determine the individual's
creditable coverage with respect to any category of benefits described
in paragraph (b). The requested entity may charge the requesting entity
the reasonable cost of disclosing the information. The requesting
entity may ask for a copy of the summary plan description (SPD) that
applied to the individual's coverage or may ask for more specific
information. Set forth below is a model form that may be used for
specific coverage information about the categories of benefits:
Information on Categories of Benefits
1. Date of original certificate:---------------------------------------
2. Name of group health plan
providing the coverage:------------------------------------------------
3. Name of participant:------------------------------------------------
4. Identification number of participant:-------------------------------
5. Name of individual(s) to whom this information applies: ____
6. The following information applies to the coverage in the
certificate that was provided to the individual(s) identified above:
a. Mental Health:------------------------------------------------------
b. Substance Abuse Treatment:------------------------------------------
c. Prescription Drugs:-------------------------------------------------
d. Dental Care:--------------------------------------------------------
e. Vision Care:--------------------------------------------------------
For each category above, enter ``N/A'' if the individual had no
coverage within the category and either (i) enter both the date that
the individual's coverage within the category began and the date
that the individual's coverage within the category ended (or
indicate if continuing), or (ii) enter ``same'' on the line if the
beginning and ending dates for coverage within the category are the
same as the beginning and ending dates for the coverage in the
certificate.
Demonstration of Coverage if Certificate is Not Provided. Under
HIPAA, in order to prevent an individual from being adversely affected
if the individual does not receive a certificate, the individual has a
right to demonstrate creditable coverage through the presentation of
documentation or other means. For example, an individual may not have a
certificate because: an entity failed to provide a certificate within
the required time period; an entity was not required to provide a
certificate; the coverage of the individual was for a period before
July 1, 1996; or, the individual has an urgent medical condition that
necessitates an immediate determination of creditable coverage by the
plan or issuer. Under these circumstances, an individual may present
evidence of creditable coverage through documents, records, third party
statements, or other means, including telephone calls by the plan or
issuer to a third party provider. The plan administrator is required to
take into
[[Page 16901]]
account all information presented in determining whether to offset any
or all of a preexisting condition exclusion. A plan or issuer is
required to treat the individual as having furnished a certificate
provided by a plan or issuer if the individual attests to the period of
creditable coverage, the individual presents relevant corroborating
evidence of some creditable coverage during the period, and the
individual cooperates with the plan's or issuer's efforts to verify the
individual's coverage.
If an individual needs to demonstrate his or her status as a
dependent of a participant, the plan or issuer is required to treat the
individual as having furnished a certificate if an attestation to such
dependency and the period of such status is provided, and if the
individual cooperates with the plan's or issuer's efforts to verify the
dependent status.
Similar rules apply relating to determining creditable coverage
under the alternative method.
Notice to Individual of Period of Preexisting Condition Exclusion.
Within a reasonable time following the receipt of the certificate,
information relating to the alternative method, or other evidence of
coverage, a plan or issuer is required to make a determination
regarding the length of any preexisting condition exclusion period that
applies to the individual and notify the individual of its
determination. Whether a determination and notification is made within
a reasonable period of time depends upon the relevant facts and
circumstances including whether the application of the preexisting
condition exclusion period would prevent access to urgent medical
services. The plan or issuer is required to notify the individual,
however, only if, after considering the evidence, it has determined
that a preexisting condition exclusion period will still be imposed on
the individual. The basis of the determination, including the source
and substance of any information on which the plan or issuer relied,
must be included in the notification. The notification must also
explain the plan's appeals procedures and the opportunity of the
individual to present additional evidence.
The plan or issuer may reconsider and modify its initial
determination if it determines that the individual did not have the
claimed creditable coverage. In this circumstance, the plan or issuer
must notify the individual of such reconsideration and, until a final
determination is made, must act in accordance with its initial
determination for purposes of approving medical services.
Model Certificate. The following model certificate has been
authorized by the Secretary of each of the Departments. Use of the
model certificate will satisfy the requirements of paragraph (a)(3)(ii)
of the regulations.
Certificate of Group Health Plan Coverage
* IMPORTANT--This certificate provides evidence of your prior
health coverage. You may need to furnish this certificate if you
become eligible under a group health plan that excludes coverage for
certain medical conditions that you have before you enroll. This
certificate may need to be provided if medical advice, diagnosis,
care, or treatment was recommended or received for the condition
within the 6-month period prior to your enrollment in the new plan.
If you become covered under another group health plan, check with
the plan administrator to see if you need to provide this
certificate. You may also need this certificate to buy, for yourself
or your family, an insurance policy that does not exclude coverage
for medical conditions that are present before you enroll.
1. Date of this certificate:-------------------------------------------
2. Name of group health plan:------------------------------------------
3. Name of participant:------------------------------------------------
4. Identification number of participant:-------------------------------
5. Name of any dependents to whom
this certificate applies:----------------------------------------------
6. Name, address, and telephone number of plan administrator or
issuer responsible for providing this certificate:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
7. For further information, call:--------------------------------------
8. If the individual(s) identified in line 3 and line 5 has at least
18 months of creditable coverage (disregarding periods of coverage
before a 63-day break), check here______ and skip lines 9 and 10.
9. Date waiting period or affiliation period
(if any) began:--------------------------------------------------------
10. Date coverage began:-----------------------------------------------
11. Date coverage ended: ______ (or check if coverage is continuing
as of the date of this certificate: ______).
Note: Separate certificates will be furnished if information is
not identical for the participant and each beneficiary.
Special Enrollment Periods--26 CFR 54.9801-6, 29 CFR 2590.701-6, 45 CFR
146.117
This section of the regulations provides guidance regarding the new
enrollment rights provided to employees and dependents under HIPAA. A
group health plan and a health insurance issuer offering group health
insurance coverage are required to provide for special enrollment
periods during which individuals who previously declined coverage are
allowed to enroll (without having to wait until the plan's next regular
open enrollment period). A special enrollment period can occur if a
person with other health coverage loses that coverage or if a person
becomes a dependent through marriage, birth, adoption, or placement for
adoption.
A plan must provide a description of the special enrollment rights
to anyone who declines coverage. The regulations provide a model of
such a description.
A person who enrolls during a special enrollment period (even if
the period also corresponds to a regular open enrollment period) is not
treated as a late enrollee. (Accordingly, the plan or issuer may not
impose a preexisting condition exclusion period longer than 12 months
with respect to the person.)
Special Enrollment for Loss of Other Coverage. The special
enrollment period for loss of other coverage is available to employees
and their dependents who meet certain requirements. The employee or
dependent must otherwise be eligible for coverage under the terms of
the plan. When the coverage was previously declined, the employee or
dependent must have been covered under another group health plan or
must have had other health insurance coverage. The plan can require
that, when coverage in the plan was previously declined, the employee
must have declared in writing that the reason was other coverage, in
which case the plan must at that time have provided notice of this
requirement and the consequences of the employee's failure to provide
the statement.
The special enrollment rights may apply with respect to an
employee, a dependent of the employee, or both. An employee who has not
previously enrolled can enroll under these rules if it is the employee
who loses other coverage. An employee's dependent can be enrolled under
these rules if it is the dependent who loses other coverage and the
employee is already enrolled. In addition, both the employee and a
dependent can be enrolled together under these rules if either the
employee or the dependent loses other coverage.
If the other coverage is COBRA continuation coverage, the special
enrollment can only be requested after exhausting COBRA continuation
coverage. If the other coverage is not COBRA continuation coverage,
special enrollment can only be requested after losing eligibility for
the other coverage or after cessation of employer contributions for the
other coverage. In each case, the employee has 30 days to request
special enrollment. An individual does not have to elect COBRA
continuation coverage or exercise similar continuation rights in order
to preserve the right to special enrollment. However, an individual
does not have a special enrollment right if the individual loses the
other coverage as a result of the individual's
[[Page 16902]]
failure to pay premiums or for cause (such as making a fraudulent
claim). Coverage under special enrollment must be effective no later
than the first day of the month after an employee request the
enrollment for himself or herself or on behalf of a dependent.
Special Enrollment for New Dependents. A special enrollment period
also occurs if a person has a new dependent by birth, marriage,
adoption, or placement for adoption. The election to enroll can be made
within 30 days following the birth, marriage, adoption, or placement
for adoption. In the case of a plan that does not offer any coverage
for dependents and is then modified to offer dependent coverage, the
election to enroll can instead be made during the 30 days beginning on
the date dependent coverage is made available.
The special enrollment rules allow an eligible employee to enroll
when he or she marries or has a new child (as a result of marriage,
birth, adoption, or placement for adoption). A spouse of a participant
can be enrolled separately at the time of marriage or when a child is
born, adopted or placed for adoption. The spouse can be enrolled
together with the employee when they marry or when a child is born,
adopted, or placed for adoption. A child who becomes a dependent of a
participant as a result of marriage, birth, adoption, or placement for
adoption can be enrolled when the child becomes a dependent. Similarly,
a child who becomes a dependent of an eligible employee as a result of
marriage, birth, adoption, or placement for adoption can be enrolled if
the employee enrolls at the same time.
In the case of a dependent special enrollment period, HIPAA
provides that coverage with respect to a marriage is effective no later
than the first day of the month after the date the request for
enrollment is received and coverage with respect to a birth, adoption,
or placement for adoption is effective on the date of the birth,
adoption, or placement for adoption.
HMO Affiliation Period as Alternative to Preexisting Condition
Exclusion--29 CFR 2590.701-7 and 45 CFR 146.119
This section of the regulations permits a group health plan
offering health insurance through an HMO, or an HMO that offers health
insurance coverage in connection with a group health plan, to impose an
affiliation period, but only if certain other requirements are met. An
``affiliation period'' is defined in the regulations as a period of
time that must expire before health insurance coverage provided by the
HMO becomes effective, and during which the HMO is not required to
provide benefits.
The regulations specify the following requirements for imposing an
affiliation period:
No preexisting condition exclusion may be imposed with
respect to coverage through the HMO;
No premium may be charged to a participant or beneficiary
for the affiliation period;
The affiliation period must be applied uniformly without
regard to any health status-related factors; and
The affiliation period must begin on the enrollment date,
cannot exceed two months (three months for a late enrollee), and must
run concurrently with any waiting period under the plan.
The regulations provide for the affiliation period to begin on the
enrollment date in the plan, not when coverage with the HMO begins.
Accordingly, if a plan offers multiple coverage options simultaneously,
the HMO cannot impose an affiliation period on plan participants who
change to the HMO option. Comments are requested on this rule.
The regulations permit an HMO to use alternatives in lieu of an
affiliation period to address adverse selection, as approved by the
State insurance commissioner or other official designated to regulate
HMOs. Because an affiliation period may be imposed only if no
preexisting condition exclusion is used, an alternative to an
affiliation period may not encompass an arrangement that is in the
nature of such an exclusion.\13\
---------------------------------------------------------------------------
\13\ These alternative that may be used in lieu of an
affiliation period to address adverse selection should not be
confused with the use of the alternative method for counting
creditable coverage discussed in the next paragraph.
---------------------------------------------------------------------------
While HMOs usually do not impose preexisting condition exclusions,
they could choose to apply a preexisting condition exclusion period for
all enrollees based on the alternative method of counting creditable
coverage if the regulations were to add a category relating to
deductibles. However, as described above under the heading
``Alternative Method,'' the regulations currently do not include such a
category.
Nondiscrimination in Eligibility and Premiums in the Group Market--26
CFR 54.9802-1, 29 CFR 2590.702, 45 CFR 146.121
The regulations include provisions implementing the
nondiscrimination provisions in HIPAA. Comments are welcomed on these
provisions, and, in particular, comments are requested on whether
guidance is needed concerning:
The extent to which the statute prohibits discrimination
against individuals in eligibility for particular benefits;
The extent to which the statute may permit benefit
limitations based on the source of an injury;
The permissible standards for defining groups of similarly
situated individuals;
Application of the prohibitions on discrimination between
groups of similarly situated individuals; and
The permissible standards for determining bona fide
wellness programs.
The Departments intend to issue further regulations on the
nondiscrimination rules in the near future. In no event will the period
for good faith compliance (specified in HIPAA sections 102(c)(5),
101(g)(5), and 401(c)(5)) with respect to section 2702 of the PHS Act,
section 702 of ERISA, and section 9802 of the Code end before the
additional guidance is provided.
A plan or issuer may not establish rules for eligibility (including
continued eligibility) of an individual to enroll under the terms of
the plan based on a health status-related factor. HIPAA and the
regulations provide a list of health status-related factors. The
Departments are considering interpreting the statutory language
relating to eligibility to enroll so that a plan or issuer would be
prohibited from providing lower benefits to certain individuals based
on health status-related factors. Comments are welcomed on this
interpretation.
Among the health status-related factors listed in the statute is
``evidence of insurability (including conditions arising out of acts of
domestic violence).'' The Conference Report states that the inclusion
of evidence of insurability in the list of health status-related
factors ``is intended to ensure, among other things, that individuals
are not excluded from health care coverage due to their participation
in activities such as motorcycling, snowmobiling, all-terrain vehicle
riding, horseback riding, skiing and other similar activities.''
However, HIPAA also provides that a plan or issuer is not required to
provide particular benefits other than those provided under the terms
of the plan. Moreover, HIPAA provides that a plan or issuer may
establish limitations or restrictions on the amount, level, extent, or
nature of the benefits or coverage for similarly situated individuals
enrolled in the plan. Comments have been received indicating that some
plans contain provisions that exclude coverage for benefits based on
the source of injury (such as benefits for injuries sustained
[[Page 16903]]
in a motorcycle accident, injuries sustained in a motorcycle accident
as the result of not wearing a helmet, or injuries sustained in the
commission of a felony). Accordingly, comments are requested on how
future guidance should treat benefit limitations based on the source of
an injury.
The Conference Report also states that ``[t]he term `similarly
situated' means that a plan or coverage would be permitted to vary
benefits available to different groups of employees, such as full-time
versus part-time employees or employees in different geographic
locations. In addition, a plan or coverage could have different benefit
schedules for different collective bargaining units.'' Accordingly,
comments are requested concerning the appropriate standards for
determining ``similarly situated individuals,'' including whether a
plan is permitted to vary benefits based on an employee's occupation.
Because these standards could impact on the small group market, the
Department of Health and Human Services is particularly interested in
receiving comments from States with respect to how varying benefits
based on occupation could affect rate setting.
The Departments also request comments regarding how the
prohibitions on discrimination should be applied between groups of
similarly situated individuals. For example, is guidance needed on
whether a plan covering employees in two different locations could have
a longer waiting period for employees at one location because the
health status of those employees results in higher health costs?
A plan or issuer may not require any individual (as a condition of
enrollment or continued enrollment) to pay a premium or contribution,
that is greater than that for a similarly situated individual enrolled
in the plan, based on a health status-related factor. However, this
limitation does not restrict the amount that an issuer can charge an
employer for the coverage. In addition, this limitation does not
prevent a plan or issuer from establishing premium discounts or rebates
or otherwise modifying applicable copayments or deductibles in return
for adherence to programs of health promotion and disease prevention
(bona fide wellness programs). Comments are requested regarding the
standards for determining bona fide wellness programs, including
whether such a program may provide a discount for non-smokers.
Special Rules--Excepted Plans and Excepted Benefits--26 CFR 54.9804-1,
29 CFR 2590.732, 45 CFR 146.145
This section of the regulations provides special rules for certain
plans and certain benefits.
Very Small Plans. The group market requirements of HIPAA do not
apply to a group health plan, or to group health insurance coverage
offered in connection with a group health plan, for any plan year if,
on the first day of the plan year, the plan has fewer than 2
participants who are current employees. However, a State may apply the
group market provisions in the PHS Act to plans with fewer than two
participants who are current employees. In this case, the State would
apply its group market insurance law requirements to such small group
plans (and such plans would not be subject to the individual market
requirements).
Excepted Benefits. The group market provisions and the related
regulations also do not apply to any group health plan or group health
insurance issuer in relation to its provision of excepted benefits. The
benefits identified in paragraph (b)(2) are generally not health
insurance coverage and are excepted in all circumstances. In contrast,
the benefits identified in paragraphs (b) (3), (4), and (5) are
generally health insurance coverage but are excepted if certain
conditions are met.
Limited-scope dental benefits, limited-scope vision benefits, and
long-term care benefits are excepted if they are provided under a
separate policy, certificate, or contract of insurance, or are
otherwise not an integral part of the plan. For this purpose, limited-
scope dental coverage typically provides benefits for non-medical
services such as routine dental cleanings, x-rays, and other preventive
procedures. Such coverage may also provide discounts on the cost of
common dental procedures such as fillings, root canals, crowns, full or
partial plates, or orthodontic services. Limited-scope dental coverage
typically does not provide benefits for medical services, such as those
procedures associated with oral cancer or with a mouth injury that
results in broken, displaced, or lost teeth.
Similarly, limited-scope vision coverage provides benefits for
routine eye examinations or the fitting of eyeglasses or contact
lenses. This coverage does not include benefits for such
ophthalmological services as treatment of an eye disease (e.g.,
glaucoma or a bacterial eye infection) or an eye injury.
Noncoordinated benefits may be excepted benefits. The term
``noncoordinated benefits'' refers to coverage for a specified disease
or illness (such as cancer-only coverage) or hospital indemnity or
other fixed dollar indemnity insurance (such as insurance that pays
$100/day for a hospital stay as its only insurance benefit) if three
conditions are met. First, the benefits are provided under a separate
policy, certificate, or contract for insurance. Second, there is no
coordination between the provision of these benefits and another
exclusion of benefits under a plan maintained by the same plan sponsor.
Third, benefits are paid without regard to whether benefits are
provided with respect to the same event under a group health plan
maintained by the same plan sponsor.
Certain supplemental benefits are excepted only if they are
provided under a separate policy, certificate, or contract of
insurance. This category of excepted benefits includes Medicare
supplemental (commonly called ``Medigap'' or ``MedSupp'') policies,
CHAMPUS supplements, and supplements to certain employer group health
plans. Such supplemental coverage cannot duplicate primary coverage and
must be specifically designed to fill gaps in primary coverage,
coinsurance, or deductibles.\14\
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\14\ Note that a group health plan, which provides primary
coverage while an individual is an active employee, is often
extended to retirees. When the retiree becomes eligible for
Medicare, the group health plan commonly coordinates with Medicare
and may serve a supplemental function similar to that of a Medigap
policy. However, such employer-provided retiree ``wrap around''
benefits are not excepted benefits (because they are expressly
excluded from the definition of a Medicare supplement policy in
section 1882(g)(1) of the Social Security Act).
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The regulations do not address section 2721(e) of the PHS Act or
section 705(d) of ERISA relating to the treatment of partnerships (or
the application of the Code's group market rules to partnerships).
Comments are requested on these provisions, including how these
provisions coordinate with other provisions relating to self-employed
individuals and partnerships.
F. Other Group Market Provisions\15\
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\15\ In this section (``Other Group Market Provisions''),
references conform to usage in 45 CFR Part 146, which uses ``HCFA''
in place of ``Department of Health and Human Services'' or
``Secretary of Health and Human Services'' and ``HCFA regulations''
in place of ``PHS Act regulations.''
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Guaranteed Renewability in Multiemployer Plans and Multiple Employer
Welfare Arrangements--Section 703 of ERISA and Section 9803 of the Code
Requirements relating to guaranteed renewability in multiemployer
plans
[[Page 16904]]
and multiple employer welfare arrangements are set forth in section 703
of ERISA and section 9803 of the Code (but not in the PHS Act). These
provisions state that a group health plan that is a multiemployer plan
or that is a multiple employer welfare arrangement may not deny an
employer whose employees are covered under such a plan continued access
to the same or different coverage under the terms of such plan, other
than for certain specified reasons. The Departments are not issuing
regulations under section 703 of ERISA or section 9803 of the Code at
this time, but anticipate issuing regulations under these sections and
solicit comments regarding these sections.
In these provisions, the terms ``continued access'' and ``same or
different coverage'' are not defined. Comments are requested on how
rules under these provisions might address variations and changes in a
plan's benefit packages and contribution rates, differences in the
characteristics of multiemployer plans and multiple employer welfare
arrangements, and any possible implications for the financial integrity
of affected plans.
Preemption of State Laws; State Flexibility--29 CFR 2590.731 and 45 CFR
146.190
The McCarran-Ferguson Act of 1945 (Pub. L. 79-15) exempts the
business of insurance from federal antitrust regulation to the extent
that it is regulated by the States and indicates that no federal law
should be interpreted as overriding State insurance regulation unless
it does so explicitly. Section 514(a) of ERISA preempts State laws
relating to employee benefit plans (including group health plans).
However, section 514(b)(2) of the ERISA saves from preemption any State
law that regulates insurance. Section 2723 of the PHS Act and section
731 of ERISA make clear that Part A of Title XXVII of the PHS Act and
Part 7 of Subtitle B of Title I of ERISA do not in any way affect or
modify section 514 of ERISA.
In addition, section 2723 of the PHS Act and section 731(a) of
ERISA preempt State insurance laws to the extent such laws ``prevent
the application of'' Part A of Title XXVII of the PHS Act and Part 7 of
Subtitle B of Title I of ERISA. (There is no corresponding provision in
the Code.) In this regard, the Conference Report states that the
conferees intended the narrowest preemption of State laws with regard
to health insurance issuers (not group health plans) with respect to
all the provisions of Part A of Title XXVII of the PHS Act and Part 7
of Subtitle B of Title I of ERISA (except for preemption with respect
to the provisions of section 2701 of the PHS Act and section 701 of
ERISA.) Consequently, the Conference Report states that State laws with
regard to health insurance issuers that are broader than federal
requirements in certain areas would not ``prevent the application of''
the provisions of Part A of Title XXVII of the PHS Act or Part 7 of
Subtitle B of Title I of ERISA.
However, the preemption is broader for the statutory requirements
of section 2701 of the PHS Act and 701 of ERISA that limit the
application of preexisting condition exclusions. State laws cannot
``differ'' from the preexisting condition exclusion requirements of
section 2701 of the PHS Act or section 701 of ERISA, except as
specifically permitted under section 2723(b)(2) of the PHS Act and
section 731(b)(2) of ERISA. These specific exceptions permit a State to
impose on health insurance issuers certain stricter limitations
relating to preexisting condition exclusions.
Comments are also solicited on issues relating to the coordination
of the new requirements under HIPAA and State requirements for
associations that may be multiple employer welfare arrangements as
defined in section 3(40) of ERISA.
Guaranteed Availability of Coverage for Small Employers Under the PHS
Act Group Market Provisions--45 CFR 146.150
Rules relating to guaranteed availability of coverage for employers
in the small group market appear only in the PHS Act (at section 2711).
In general, this section requires health insurance issuers that offer
coverage in the small group market to offer to any small employer all
of the products they actively market in that market. This is generally
referred to as an all-products guarantee. However, as allowed under
applicable State law, the issuer can require that the employer make a
minimum contribution toward the premium charged and have a minimum
level of participation by eligible individuals. The issuer must also
accept for enrollment every eligible individual without regard to
health status. For purposes of this section, an eligible individual is
one who meets the applicable requirements of the group health plan, the
issuer, and State law for coverage under the plan.
Some States have, in recent years, made reforms in their small
group markets that only require guaranteed issue of a basic and a
standard policy, rather than an all-products guarantee. They have urged
that an all-products guarantee not be adopted, arguing that the law
does not specifically require it. However, sections 2711 and 2741 of
the PHS Act, as added by HIPAA, contain virtually identical
requirements requiring issuers that offer health insurance coverage in
either the small group or individual market to make ``such coverage''
available to, respectively, small employers or eligible individuals.
While section 2741 explicitly permits issuers to limit to two policies
the offerings they are required to make in the individual market, the
small group market provisions contain no similar exception. In fact,
section 2713(b)(1)(D) requires that an issuer that offers health
insurance to any small employer must provide information concerning
``the benefits and premiums available under all health insurance
coverage for which the employer is qualified.'' (Emphasis added.) This
indicates that Congress intended to require an all-products guarantee
in the small group market. (However, a State that implements an
``alternative mechanism'' in the individual market under section 2744
of the PHS Act has the flexibility either to impose an all-products
guarantee or to use a completely different mechanism for making
insurance available to individuals guaranteed coverage under the
statute.)
Various industry groups and persons responding to the notice that
the three Departments published on December 30, 1996 asked that the
term ``offer'' be interpreted to mean ``actively marketed,'' so that
issuers would not be required to reopen closed blocks of business. The
regulations make this clear.
Section 2711 also requires issuers to accept for enrollment any
individuals who are eligible to enroll under the terms of the plan, and
who satisfy the requirements of the issuer and applicable State law,
during the period in which the individual ``first becomes eligible'' to
enroll under the terms of the group health plan. Thus, the issuer is
not required to accept late enrollees. The regulations make it clear
that this protection extends to individuals if they ``first become
eligible'' to enroll during a special enrollment period. The special
enrollment provisions of the statute evidence the intent that
individuals who qualify for special enrollment be given the same
protections given to newly-hired employees and their dependents.
[[Page 16905]]
An issue has also been raised as to whether the statutory
definitions of premium contributions and group participation rules,
which are repeated in the regulations, related only to percentages of
employees or premium dollars or to absolute numbers of employees or
premium amounts. If the latter interpretation were permitted, the
effect would be to undermine the all-products guarantee by allowing,
for example, some products to be available to ``larger'' small
employers, but not to the smallest employers. The regulations currently
leave interpretation of this language to the States, but comments are
welcomed on this issue.
Section 146.150 also includes rules regarding the circumstances
under which issuers are permitted to deny coverage to employers. If the
product is a network plan, under which services are furnished by a
defined set of providers, the issuer can deny coverage to an employer
whose eligible individuals do not live, work, or reside in the network
plan's service area. It can also deny coverage if it has demonstrated
to the State that its network does not have the capacity to deliver
services to additional groups, but is then barred for 180 days from
offering coverage in that service area. An issuer may also deny
coverage if it demonstrates that it lacks sufficient financial reserves
to underwrite additional coverage, but is barred for 180 days from
offering coverage in the small group market in the State. Both of these
exceptions must be applied to all employers uniformly without
consideration of the health status or claims experience of an
employer's employees or dependents. Neither of these exceptions
relieves a network plan of its responsibility to continue servicing its
in-force business under the guaranteed renewability requirements of the
regulations.
Finally, Sec. 146.150 provides that if the coverage is only made
available to members of ``bona fide associations'' as that term is
defined in the regulations, it is not subject to the guaranteed
availability requirements. (Accordingly, the coverage does not have to
be offered to non-members.) However, employers that obtain coverage
through a bona fide association are assured of guaranteed access to the
association's coverage options as long as they remain members of the
association. This is because a bona fide association cannot condition
membership in the association on health status-related factors.
Moreover, it must offer coverage to all employers who are members
without regard to health status-related factors relating to their
employees or dependents. Therefore, an association cannot legally
refuse enrollment to members on a selective basis so long as they meet
the association's membership criteria.
Guaranteed Renewability of Coverage for Employers Under the PHS Act
Group Market Provisions--45 CFR 146.152
Section 146.152 of the Health Care Financing Administration (HCFA)
regulations implements section 2712 of the PHS Act, which requires
issuers to renew or continue in force any coverage in the large or
small group market at the option of the plan sponsor. The exceptions to
this requirement include nonpayment of premiums, fraud, and violation
of minimum participation or contribution rules, as permitted under
applicable State law. Also, the issuer can cease to offer either a
particular product or all coverage it offers in the particular market,
and can refuse to renew if the group health plan's participants all
leave the service area of a network plan, or if the coverage is
provided through a bona fide association and the employer's membership
ends.
Issuers that decide to discontinue offering a particular product or
all coverage in the small or large group market are subject to certain
requirements outlined in paragraphs (c) and (d) of this section of the
regulations. Issuers discontinuing only a particular product must give
90 days' notice, must offer the plan sponsor the option to purchase
other coverage the issuer offers in that market, and must discontinue
the product uniformly, without regard to claims experience or health
status of participants or dependents under a particular group health
plan. If the issuer terminates all coverage in a market or markets, it
must provide 180 days' notice to each plan sponsor, and it is
prohibited from issuing coverage in the market(s) or State involved for
five years following the date of discontinuation. Plans or issuers may
modify the health insurance coverage at the time of coverage renewal,
provided the modification is consistent with State law and, for the
small group market, is effective uniformly among group health plans
with coverage under that product.
Some States have asked whether an issuer that chooses to stop
selling comprehensive products, such as a basic or standard policy, in
a particular State's group market, must also cease selling policies
consisting of excepted benefits. Because Congress permitted these types
of supplemental policies and limited benefit plans to be excepted from
the requirements of HIPAA in both the group and individual markets,
HCFA intends to defer to the States' judgment on this issue, and
solicit comments.
State law may limit the extent to which an issuer can abandon a
product or market, and under what circumstances. For example, a State
may choose to require an issuer vacating the market to transfer its
business to another issuer through assumption reinsurance, or some
other means permitted under State law.
Paragraph (g) of this section of the regulations provides that,
with respect to group coverage offered only through associations, the
option of guaranteed renewability extends to include employer members
of an association. This provision means that all employers covered by
an issuer through an association have the right to renew the coverage
they received if the association ceases to serve its members,
regardless of the reason.
Disclosure of Information by Issuers to Employers Seeking Coverage in
the Small Group Market--45 CFR 146.160
Section 146.160 of the HCFA regulations implements section 2713 of
the PHS Act by setting forth rules relating to disclosure of
information by issuers to employers seeking coverage in the small group
market. In its solicitation and sales materials, the issuer must make a
reasonable disclosure that the specified information is available on
request. The information that must be provided includes the issuer's
right to change premium rates and the factors that may affect changes
in premium rates, renewability of coverage, any preexisting condition
exclusion (including use of the alternative method of counting
creditable coverage), any affiliation periods applied by HMOs, the
geographic areas served by HMOs, and the benefits and premiums
available under all health insurance coverage for which the employer is
qualified under minimum contribution and participation rules, as
permitted by State law. The issuer is exempted from disclosing
proprietary or trade secret information under applicable law.
``Factors that may affect changes in premium rates'' and
``proprietary and trade secret information under applicable law'' have
not been defined. Comments are requested regarding whether they should
be defined.
The information described in this section must be provided in
language that is understandable by the average small employer and
sufficient to reasonably inform small employers of their rights and
obligations under the health insurance coverage. This requirement can
be satisfied by using as
[[Page 16906]]
a model the outlines of coverage provided under Medicare Supplement
insurance. (These outlines are required to provide easy comparison of
the coverage and cost of all available products.) Reasonable
information includes rating schedules for each product to which more
than one rate applies, and, with respect to network plans, maps of
service areas or lists of counties served.
Exclusion of Certain Plans From the PHS Act Group Market Requirements--
45 CFR 146.180
Section 146.180 of the HCFA regulations implements section 2721 of
the PHS Act, which permits certain nonfederal governmental plans to
elect to be exempted from some or all of the group market requirements
of the HCFA regulations, although they are subject to the certification
and disclosure requirements of Sec. 146.115. With respect to nonfederal
governmental plans that are collectively bargained, this section does
not preempt State and local collective bargaining laws. The regulation
establishes the form and manner of the election, and requires a
nonfederal governmental plan making this election to notify plan
participants, at the time of enrollment and on an annual basis, that it
has made the election and what effect the election has. The participant
notice and certification and disclosure obligations are integral parts
of the election. Failure to comply with these obligations invalidates
an election and subjects the nonfederal governmental plan to the
requirements the election would have permitted the plan to avoid.
Only nonfederal governmental plans that are self-funded (in whole
or in part) can make the election, and the election only applies to the
self-funded portion. A health insurance issuer that sells insurance
coverage to a nonfederal plan must comply with all the group market
requirements.
Enforcement of PHS Act Requirements--45 CFR 146.184
Part 146 imposes requirements on health insurance issuers that
offer coverage in the group market in a State, and on nonfederal
governmental (i.e., State and local) group health plans. With respect
to issuers, the statute makes it clear that it is solely within the
discretion of the States, in the first instance, whether to take on the
responsibility for enforcing those requirements or whether to leave
enforcement to the federal government. HCFA anticipates that the States
will choose to enforce the requirements. However, the statute also
makes clear that if a State does not substantially enforce the
requirements, HCFA must enforce them. The statute also requires HCFA to
enforce the requirements applicable to nonfederal governmental plans.
Section 146.184(b)(2) sets forth the procedures that HCFA will
follow if a question is raised about the State's enforcement with
respect to issuers. Under the procedures, States are given every
opportunity to demonstrate why federal enforcement is not required. The
regulations also make it clear that the procedures will not be
triggered unless HCFA is satisfied that there has first been a
reasonable effort to exhaust any State remedies. However, if, after
giving the State a reasonable opportunity to enforce, HCFA makes a
final determination that a State is not substantially enforcing these
requirements, HCFA will enforce the requirements using the civil money
penalties provided for under the statute.
Parargarph (d) describes the process for imposing civil money
penalties against issuers or nonfederal plans that fail to comply with
the group market requirements in the PHS Act. If HCFA receives a
complaint or other information that indicates that a right guaranteed
by the group market rules is being denied, HCFA will first determine
which entity is potentially responsible for any penalty. If the failure
is by an issuer, the issuer will be responsible. If a nonfederal
governmental plan is sponsored by a single employer, the employer will
be liable, but if the plan is sponsored by two or more employers, the
plan will be liable. If, after giving the entity or entities an
opportunity to respond, HCFA assesses a penalty, the regulation
provides appeal rights. The penalty can consist of up to $100 for each
day, for each individual whose rights are violated.
Effective Dates--26 CFR 54.9806-1, 29 CFR 2590.736, 45 CFR 146.125
The group market provisions are generally effective for plan years
beginning after June 30, 1997.\16\ In many cases, no preexisting
condition exclusion may be imposed with respect to an individual on the
effective date because any permitted preexisting condition exclusion
period is measured from the individual's enrollment date in the plan
(even if the enrollment date is before the statutory effective date).
An individual who has not completed the maximum permitted exclusion
period under HIPAA before the effective date for his or her plan may
use creditable coverage to reduce the remaining preexisting condition
exclusion period. The regulations contain examples illustrating the
effect of these rules.
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\16\ In the case of a group health plan maintained pursuant to
one or more collective bargaining agreements between employee
representatives and one or more employers ratified before August 21,
1996, the group market provision (other than the requirements to
provide certifications) do not apply to plan years beginning before
the later of July 1, 1997 or the date on which the last of the
collective bargaining agreements relating to the plan terminates
(determined without regard to any extension agreed to after August
21, 1996).
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The requirement that a plan or issuer provide certificates to show
creditable coverage applies to events occurring on or after July 1,
1996, except that in no case is a certificate required to be provided
before June 1, 1997 or to reflect coverage before July 1, 1996.
For events occurring on or after July 1, 1996 but before October 1,
1996, a certificate is required to be provided only upon a written
request by or on behalf of the individual to whom the certificate
applies. For events occurring on or after October 1, 1996 and before
June 1, 1997, a certificate must be furnished no later than June 1,
1997 (or, if later, any date that would otherwise apply under the
standard rules).
The regulations include an optional transition rule for events
before June 1, 1997. (The transition rule applies to automatic
certificate events; it does not apply where a certificate is
requested.) A group health plan or health insurance issuer offering
group health coverage is deemed to satisfy the automatic certificate
requirements if a special notice is provided no later than June 1,
1997. The notice must be in writing and must include information
substantially similar to the information included in a model notice
authorized by the Secretaries. For this purpose, the following model
notice is authorized:
IMPORTANT NOTICE OF YOUR RIGHT TO DOCUMENTATION OF HEALTH COVERAGE
Recent changes in Federal law may affect your health coverage if
you are enrolled or become eligible to enroll in health coverage
that excludes coverage for preexisting medical conditions.
The Health Insurance Portability and Accountability Act of 1996
(HIPAA) limits the circumstances under which coverage may be
excluded for medical conditions present before you enroll. Under the
law, a preexisting condition exclusion generally may not be imposed
for more than 12 months (18 months for a late enrollee). The 12-
month (or 18-month) exclusion period is reduced by your prior health
coverage. You are entitled to a certificate that will show evidence
of your prior health coverage. If you buy health insurance other
than through an employer group health plan, a certificate of prior
coverage may help you obtain coverage without a preexisting
condition exclusion. Contact your State insurance department for
further information.
[[Page 16907]]
For employer group health plans, these changes generally take
effect at the beginning of the first plan year starting after June
30, 1997. For example, if your employer's plan year begins on
January 1, 1998, the plan is not required to give you credit for
your prior coverage until January 1, 1998.
You have the right to receive a certificate or prior health
coverage since July 1, 1996. You may need to provide other
documentation for earlier periods of health care coverage. Check
with your new plan administrator to see if your new plan excludes
coverage for preexisting conditions and if you need to provide a
certificate or other documentation of your previous coverage.
To get a certificate, complete the attached form and return it
to:
[Insert Name of Entity:]
[Insert Address]:
For additional information contact: [Insert Telephone Number]
The certificate must be provided to you promptly. Keep a copy of
this completed form. You may also request certificates for any of
your dependents (including your spouse) who were enrolled under your
health coverage.
REQUEST FOR CERTIFICATE OF HEALTH COVERAGE
Name of Participant:---------------------------------------------------
Date:------------------------------------------------------------------
Address:---------------------------------------------------------------
Telephone Number:------------------------------------------------------
Name and relationship of any dependents for whom certificates
are requested (and their address if different from above):
----------------------------------------------------------------------
----------------------------------------------------------------------
The provisions in the regulations relating to method of delivery
and entities required to provide a certificate apply with respect to
the provision of the notice. If an individual requests a certificate
following receipt of the notice, the certificate must be provided at
the time of the request as set forth in the regulations relating to
certificates provided upon request.
HIPAA provides that no enforcement action is to be taken against a
group health plan or health insurance issuer with respect to a
violation of the group market rules before January 1, 1998 if the plan
or issuer has sought to comply in good faith with such requirements.
Compliance with the regulations is deemed to be good faith compliance
with the group market rules.
G. Interim Rules and Request for Comments
Section 707 of ERISA (redesignated as section 734 by section
603(a)(3) of the NMHPA), Section 2707 of the PHS Act, and Section 9806
of the Code added by HIPAA, provide, in part, that the Secretaries of
Labor, Treasury and HHS may promulgate any interim final rules as they
determine are appropriate to carry out the portability provisions of
HIPAA.
Under Section 553(b) of the Administrative Procedure Act (5 U.S.C.
551 et seq.) a general notice of proposed rulemaking is not required
when the agency, for good cause, finds that notice and public comment
thereon are impracticable, unnecessary or contrary to the public
interest.
These rules are being adopted on an interim basis because the
Secretaries have determined that without prompt guidance, some members
of the regulated community will have difficulty complying with the
HIPAA's certification requirements, and will be in violation of the
statute. Congress expressly intended that the certification and prior
creditable coverage provisions serve as the mechanism for increasing
the portability of health coverage for plan participants and their
beneficiaries. Without the Departments' guidance, plans would likely be
unable to produce the necessary amendments to plan documents reflecting
HIPAA's new requirements, as well as the appropriate certifications of
prior coverage that would help participants and beneficiaries reduce
any applicable preexisting condition exclusion periods imposed by a new
health plan. Thus, without the Departments' prompt guidance,
participants and beneficiaries will not have the benefit of a
convenient certificate of prior coverage to present upon changing
health coverage, and will likely have greater difficulty proving that
they are entitled to health coverage immediately, or soon after joining
a new health plan.
Moreover, HIPAA's portability requirements will affect the
regulated community in the immediate future. HIPAA's certification
requirements are effective for all group health plans on June 1, 1997.
HIPAA's underlying requirements concerning establishing periods of
prior creditable coverage, pre-existing condition exclusion provisions,
and the special enrollment requirements, are generally applicable for
group health plans for plan years beginning on or after July 1, 1997.
Plan administrators and sponsors, and participants and beneficiaries
will need guidance on how to comply with the new statutory provisions
before these effective dates. These rules have been written in order to
ensure that plan sponsors and administrators of group health plans, as
well as participants and beneficiaries, are provided timely guidance
concerning compliance with these recently enacted amendments to ERISA,
the PHS Act and the Code. These rules provide guidance on these
statutory changes, and are being adopted on an interim basis because
the Departments find that issuance of such regulations in interim final
form with a request for comments is appropriate to carry out the new
regulatory structure imposed by HIPAA on group health plans and health
insurance issuers. In addition, these rules are necessary to ensure
that plan sponsors and administrators of group health plans, as well as
participants and beneficiaries, are provided timely guidance concerning
compliance with new and important disclosure obligations imposed by
HIPAA.
Sections 101(g)(4), 102(c)(4), and 401(c)(4) of HIPAA also mandate
that the Secretaries issue regulations necessary to carry out the
portability amendments by April 1, 1997. Issuance of a notice of
proposed rule making with pubic comment thereon prior to issuing a
final rule could delay significantly the issuance of essential guidance
and prevent the Departments from complying with their statutory rule
making deadline. Furthermore, these rules are being adopted on an
interim basis and the Departments are inviting interested persons to
submit written comments on the rules for consideration in the
development of the final rules relating to HIPAA. Such final rules may
be issued in advance of January 1, 1998, after affording the public an
opportunity to review and comment.
For the foregoing reasons, the Departments find that the
publication of a proposed regulation, for the purpose of notice and
public comment thereon, would be impracticable, unnecessary, and
contrary to the public interest.
H. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes
certain requirements with respect to rules which would have significant
economic impact on a substantial number of small entities. Section 603
of the RFA requires an agency publishing a general notice of proposed
rulemaking (NPRM) under section 553 of the APA to present at the time
of the publication of its NPRM an initial regulatory flexibility
analysis, describing the impact of the rule on small entities, and
seeking public comment on such impact.
Small entities include small business, non-profit organizations,
and governmental agencies. A ``rule'' under the Regulatory Flexibility
Act is one for which a general notice of proposed rulemaking is
required under section 553(b) of the APA.
Since these rules are issued as interim rules, and not as a general
notice of
[[Page 16908]]
proposed rulemaking, for the reasons stated above, an Initial
Regulatory Flexibility analysis has not been prepared.
While these rules are being promulgated as interim final rules, the
Departments nevertheless invite interested persons to submit comments
for consideration in the development of the final rules regulating to
HIPAA. Consistent with the policy of the Regulatory Flexibility Act,
the public is encouraged to submit comments that suggest alternative
rules that accomplish the stated purpose of the statute and minimize
the impact on small entities. Specifically, the public in encouraged to
address:
What information relating to prior coverage, preexisting
condition exclusion, health status, waiting periods and similar issues
do employers, plans and issuers currently rely on in maintaining health
care coverage systems?
What are the estimated costs of complying with the
statute's requirements on certification of periods of prior creditable
coverage?
How many small issuers offer products that may be subject
to the regulations? Is there an anticipated effect on these small
companies' competitiveness due to the regulations?
To what extent do group health plans currently use service
providers to fulfill the administrative obligations, including
reporting and disclosure, previously imposed by ERISA? To what extent
would group health plans also use service providers to comply with this
regulation's certification requirements?
I. Executive Order 12866, the Unfunded Mandates Reform Act and the
Small Business Regulatory Enforcement Fairness Act of 1995
These rules have been determined to be a significant regulatory
action under Section 3(f) of Executive Order 12866. The following
analysis is consistent with Section 6(a)(3)(C) of the Order.
These rules are not subject to the Unfunded Mandates Reform Act of
1995 (Pub. L. 104-4), because they are interim final rules. However,
consistent with the policy embodied in the Unfunded Mandates Reform
Act, the regulation has been designed to be the least burdensome
alternative for state, local and tribal governments and the private
sector, while achieving the objectives of HIPAA. In addition, the
following analysis provides information concerning the effects of the
regulation on state, local, and tribal governments and the private
sector.
Throughout the regulatory process, HHS met and consulted with
representatives of affected state, local and tribal governments. These
groups include the National Association of Insurance Commissioners, the
National Governors' Association, the National Council for State
Legislatures, the Indian Health Service, and the American Public
Welfare Association. HHS also provided technical advice regarding its
interpretation of the statute to state insurance commissioners and
state legislatures at their request. Generally, these groups have
concerns regarding:
The statute's preemption of state laws that would prevent
the implementation of statutory provisions;
The burden on issuers and plans to implement the statutory
provisions, especially with regard to certification of prior creditable
coverage; and
State's desires to have considerable flexibility in
complying with the statue, and continuing their traditional role as
regulators of insurance.
After serious consideration of these concerns, HHS narrowly
interpreted the preemption of state law, taking the least burdensome
alternatives provided states considerable flexibility in complying with
the statute, and recognized the limited authority of federal agencies
in the regulation of health insurance.
The Administrator of the Office of Information and Regulatory
Affairs of the Office of Management and Budget has determined that this
is a major rule for purposes of the Small Business Regulatory
Enforcement Fairness Act of 1996 (5 U.S.C. Section 801 et seq.).
Set forth below is a discussion regarding the impact of the statute
and a discussion of the costs and benefits of the regulations
implementing the statute.
J. Extensions of Coverage Under the Statute
These regulations implement certain provisions of HIPAA. The
statute was enacted to, among other things, ``improve portability and
continuity of health care coverage in the group and individual
markets,'' as stated in the Conference Report. The statute accomplishes
these goals by instituting reforms in the group and individual
insurance markets, including provisions limiting the use of pre-
existing condition exclusions, and requiring guaranteed access to
health care coverage and guaranteed renewability for certain groups and
individuals. There are also non-discrimination provisions and special
enrollment rights in the statute.
The pre-existing condition exclusion periods that HIPAA restricts
are widespread. According to the Bureau of Labor Statistics (BLS), 46
percent of participants in private-sector, employer-sponsored health
plans are in plans with pre-existing condition exclusions (1993-1994
data). The same is true of 41 percent of participants in state and
local government employer-sponsored plans (1994 data.)
The duration of exclusion periods varies from plan to plan. Based
on Peat Marwick's 1995 employer survey, an estimated 57 percent of
participants in plans with exclusions are in plans with exclusions that
last 12 months. The remainder are distributed as follows: 13 percent in
plans with 3-month exclusions, 22 percent in plans with 6-month
exclusions, 7 percent in plans with 9-month exclusions, and 1 percent
in plans with exclusions that last more than 12 months.
HIPAA's portability provisions resemble provisions of many current
state laws. Importantly, however, HIPAA extends these provisions of
self-insured ERISA plans which federal law shields from state
regulation. In addition, it sets a minimum uniform threshold for
insured group plans and individual markets across all states.
HIPAA's portability provisions will result in both direct and
social costs and benefits.
In general, direct costs and benefits arise directly from the
application of HIPAA's insurance portability and access provisions.
Direct costs and benefits are often best understood as transfers of
resources among economic agents, which do not necessarily represent
changes in overall social welfare. Stated differently, they represent
changes in how the economic pie is divided (in this case, mainly with
respect to health care), and not changes in the size of the pie. Direct
costs and benefits are often easier to quantify than social costs, as
they are often directly observable as transactions in the marketplace.
With respect to HIPAA's portability and access provisions, direct
costs and benefits arise from the extension of insurance coverage to
individuals and conditions not otherwise covered. Direct benefits to
individuals include the payment of individuals' claims for those
services and conditions. Direct costs of individuals include the
premiums associated with that coverage. Some available estimates of
these direct costs and benefits are presented below.
Social costs and benefits, in contrast, do result in net changes in
overall social welfare. Social benefits generally reflect social
welfare gains that arise in
[[Page 16909]]
connection with statutory or regulatory interventions that remedy
market failure. Likewise, social costs generally reflect welfare losses
arising from interventions in otherwise efficient markets. Social
welfare changes often play out through a complex set of behavorial
responses to interventions. They are more difficult to quantify than
direct costs and benefits.
With respect to HIPAA, social welfare changes generally arise
indirectly from HIPAA's portability and access provisions. They reflect
dynamic behavioral responses to HIPAA's portability and access
provisions. Expected social benefits, primarily improved access to
health insurance and also improved job mobility, cannot be meaningfully
quantified. Expected social costs, which could include erosions in
coverage arising from direct premium costs, are expected to be small.
Since no measures of HIPAA's many social welfare effects are available,
a mostly qualitative discussion of major effects is offered below. A
more quantitative discussion of direct costs and benefits follows
later.
1. Social Welfare Effects of HIPAA's Portability and Access Provisions
The primary direct benefits of the law are improved access to
insurance coverage, and more comprehensive coverage, through employers
and in the individual insurance market. Increased access and
comprehensiveness helps protect individuals from catastrophic expenses.
There are a number of social benefits associated with improved
access:
It reduces individual's risk of incurring large out-of-
pocket costs;
It is often more cost effective to provide timely
preventive and remedial care than to delay care until conditions
worsen. Therefore, to the extent that individuals receive more timely
and appropriate care as a result of HIPAA, over time, the long-term,
cumulative cost of their care may be lower. This has the potential to
reduce premiums for all individuals within a risk pool, not just the
individuals directly affected by HIPAA. Similarly, the Medicare program
may benefit from reduced expenditures because more individuals who
become newly entitled to Medicare will have had insurance coverage
during the course of their working life or through the individual
insurance market.
To the extent that more timely care results in improved
health, worker attendance and productivity might improve.
HIPAA's portability provisions likewise help individuals
transitioning from state and federal welfare programs to paid work.
Individuals with health conditions can offset their new health plan's
preexisting condition exclusions against prior coverage from any
source, including Medicaid.
Reductions in job benefit both individuals and the economy
at large. Increased mobility can boost individual workers' career
opportunities. Increased mobility also strengthens U.S. economic
efficiency and competitiveness;
HIPAA's federal minimum standards for small group and
individual access to insurance coverage may improve the functioning of
small group and individual markets. The standards will alleviate
disruptions that might otherwise arise when ``riskier'' groups and
individuals are denied or dropped from coverage.
To the extent that HIPAA results, on net, in more
insurance payment for otherwise uncompensated care, cost-shifting and
associated inefficiencies in health care markets could be reduced.
HIPAA's group-to-individual portability provisions may provide a
benefit for employees who move to jobs without health coverage. Some
small employers that do not currently offer health care coverage may be
able to do so more easily under HIPAA's guaranteed issue provisions.
This may help level the playing for small employers to compete with
larger ones in recruiting employees. While premium increases resulting
from HIPAA may reduce the affordability of coverage for some employers,
this effect is expected to be small, as noted below.
HIPAA also requires that issuers offering health insurance coverage
in the individual market renew coverage for all individuals purchasing
health insurance coverage in the individual market, not only eligible
individuals. However, when an eligible individual elects family
coverage, the issuer may apply a pre-existing condition exclusion,
under applicable State law, to any of the individual's family members
who are not eligible individuals under the statute.
The group-to-group portability regulation is likely to benefit
individuals who maintain employer-sponsored health benefit coverage and
change jobs or health plans, the dependents of such individuals, and
workers who face ``job lock'' due to health coverage concerns.
Under HIPAA, health insurance coverage provided under a COBRA
continuation policy qualifies as group health coverage. This
distinction is particularly important for individuals moving from the
group to the individual market, or from one group health plan to
another, since electing this coverage would enable these individuals to
maintain continuous creditable coverage. In addition, individuals
seeking coverage in the individual market must elect and exhaust COBRA
continuation coverage in order to qualify as an ``eligible individual''
in the individual market.
Thus, the statute provide an additional incentive for those
individuals who lose coverage when they change jobs to elect COBRA
continuation coverage in order to avoid a break in coverage. The
statute also provides an incentive for those individuals who are
seeking coverage in the individual market without a preexisting
condition exclusion. Consequently, we expect more individuals to elect
COBRA continuation coverage.
Absent HIPAA's group-to-group portability standards, individuals
with employer-sponsored health coverage who have preexisting medical
conditions and who change health plans could be denied coverage for
their conditions. In that case, individuals would have to pay out of
pocket for necessary medial services, or forgo some services, thereby
risking adverse health consequences and higher future costs. Other
individuals with preexisting medical conditions who change health plans
and face preexisting condition exclusions may pay for COBRA
continuation coverage in addition to paying for their new health plan
to ensure coverage for the preexisting condition. Other workers who are
concerned about losing health care coverage would stay in their jobs or
turn down job offers.
According to the U.S. General Accounting Office, over 20 million
individuals changed jobs in 1993 (General Accounting Office, Report
HEHS-95-257, ``Health Insurance Portability: Reform Could Ensure
Continued Coverage for up to 25 Million Americans,'' September 1995,
pg. 7). Approximately 12 million of these workers had employer-
sponsored health care coverage. Additionally, nearly 7 million non-
working dependents received employer-sponsored health care coverage
through these job changers. According to GAO, many of these 20 million
could benefit from the regulation's requirement that prior health care
coverage be credited against a new health plan's preexisting condition
exclusion period. GAO concludes that the statute will allow
approximately 9 million job changers (who have at least 12 months of
prior creditable coverage), with 5 million dependents, to change jobs
without the
[[Page 16910]]
risk of facing any preexisting condition exclusions. Another 3 million
workers who change jobs (who have some smaller amount of prior
coverage), with 2 million dependents, would face reduced waiting
periods before receiving full coverage.
The number of workers and dependents actually gaining coverage for
a preexisting condition due to credit for prior coverage following a
job change under HIPAA will be smaller than this, however. GAO's
estimates of people who could benefit include all job changers with
prior coverage and their dependents, irrespective of whether their new
employer offers a plan, whether their new plan imposed a preexisting
condition exclusion period, and whether they actually suffer from a
preexisting condition. Accounting for these narrower criteria, as
discussed below, CBO estimates that 100,000 will actually receive
additional coverage under HIPAA's credit for prior coverage at any
point in time.
In addition, employers, especially smaller employers, that offer
health care benefits to their employees often change health insurance
issuers, exposing workers or their dependents with preexisting medical
conditions to gaps in coverage. Small employers generally change
insurance issuers every 3 to 4 years (Senate Committee on Labor and
Human Resources, Report 104-156, Oct. 12, 1995, pg. 4). The provisions
of the statute that allow crediting of prior coverage should reduce the
likelihood of gaps in coverage.
One of the benefits of HIPAA to individuals is that it alleviates
``job lock.'' That is, employees who have stayed in a particular job in
order to continue health care coverage can now change to a job that the
person might not otherwise have taken because he or she (or a
dependent) would have been subject to a pre-existing condition
exclusion; or the person can seek coverage in the individual insurance
market as a result of HIPAA's provisions requiring guaranteed issue for
individuals coming from the group market. According to the GAO, there
are one to four million Americans ``who at some time have been
unwilling to leave their jobs because of concerns about losing their
health care coverage'' (Health Insurance Portability: Reform Could
Ensure Continued Coverage for Up to 25 Million Americans, HEHS-95-257,
September 1995). The GAO notes that ``surveys have found that between
11 and 30 percent of individuals report that they or a family member
have remained in a job at some time because they did not want to lose
health care coverage.'' Among those individuals, twenty percent stated
that pre-existing conditions exclusions constituted the basis for their
reluctance to change jobs.
These figures, reflecting individuals stated intentions, may not
accurately predict their behavior under different circumstances,
however. Moreover, HIPAA's portability provisions will alleviate only
some causes of ``job lock''--for example, employees might still be
somewhat impeded from taking jobs where no coverage is offered.
Eligible individuals might benefit in this case from HIPAA's group-to-
individual portability provisions, but would have to pay the premium
themselves. Therefore, many individuals who report job lock will not
necessarily change jobs as a result of HIPAA.
There also appears to be a difference by age categories of the
extent of job lock. The Health and Retirement Study (HRS), conducted by
the University of Michigan's Institute for Social Research, which
provides an emerging portrait of Americans age 51 through 61 and their
spouses, found that job flexibility is a key issue for this age group.
``Almost three-quarters of HRS respondents would prefer to phase down
from full-time work to part-time work when they retire, in sharp
contrast to actual behavior, where most people who retire leave the
workforce entirely. About one-third of the people who would not look
for another job are victims of `job lock,' unable to leave because they
might give up valuable pensions or health insurance benefits if they
switched employers'' (HRS National Institute on Aging Press Release,
June 17, 1993).
Empirical evidence for job lock is mixed. Buchmueller and Valletta
found strong evidence of job lock among women but weak evidence among
men (``The Effects of Employer-provided Health Insurance on Worker
Mobility,'' Industrial and Labor Relations Review, volume 49, number 3,
April 1996). Monheit and Cooper conclude that the magnitude and
importance of job lock, which some studies report as causing a 20 to 40
percent reduction in mobility, is not as great as generally thought
(``Health Insurance and Job Mobility: Theory and Evidence,'' Industrial
and Labor Relations Review, volume 48, number 1, October 1994). Kapur
found that job lock does not have a significant effect on job mobility
(``The Impact of Pre-existing Health Conditions on Job Mobility: A
Measure of Job Lock,'' WP-95-25, Institute for Policy Research), while
Gruber and Madrian found that COBRA continuation provisions, and
similar state laws (allowing individuals to continue coverage through
their employer group health plan for a specified period), have led to a
significant increase in job mobility (``Health Insurance and Job
Mobility: the Effects of Public Policy on Job-lock,'' Industrial and
Labor Relations Review, volume 48, number 1, October 1994).
CBO does not quantify potential relief from ``job lock,'' which is
a social, rather than a direct, benefit of HIPAA. Because people freed
from job lock are going from one type of insurance to another (moving
to a different group health plan or to an individual insurance policy
under HIPAA portability), CBO also views freedom from job lock as
consisting of ``insured expenses * * * transferred among different
insurers * * * [that] * * * are not * * * direct costs.''
The majority of evidence indicates that job lock is a concern for
many workers. HIPAA will address this concern, though the number of
workers who will gain an advantage is unclear and how the value of the
benefit can be measured is also unclear.
As the forgoing discussion illustrates, HIPAA's social benefits are
expected to be far ranging, but they cannot be meaningfully quantified.
HIPAA might also pose social costs. In particular, increases in
premiums under HIPAA's portability and access provisions could erode
coverage. These costs are expected to be small, however, particularly
in the group market where premium increases are estimated to be very
small relative to the overall market.
In summary, HIPAA's portability and access provisions are expected
to result in a number of largely unquantifiable social benefits. These
include greater continuity of coverage, improved access to health care
and possible corollary improvements in health and productivity,
improved stability and efficiency in insurance health care markets,
eased movement from public assistance to work, and gains in job
mobility that are favorable to individual careers and to U.S.
competitiveness.
2. Direct Costs and Benefits of HIPAA's Portability and Access
Provisions
HIPAA's portability and access provisions impose direct costs and
provide direct benefits to a broad range of entities, as well as to
individual citizens. Costs will be incurred by employers, group plans,
insurance companies and managed care plans (``issuers''); states, in
their capacity as regulators, and states and localities as entities
providing health care coverage for their employees, retirees and
dependents; the federal government as regulator and as the source of
health care coverage for employees, annuitants and dependents, and for
others through programs such as Medicaid and
[[Page 16911]]
Medicare. Benefits will accrue to individuals and to small employers
whose access to comprehensive insurance is improved.
A number of studies have evaluated the direct economic impact of
the law. The CBO found that ``to the extent that states have not
already implemented similar rules, these changes would clarify the
insurance situation and possibly reduce gaps in coverage for many
people.''
The CBO notes that because HIPAA does not impose limits on premiums
issuers may charge, insurance coverage, though available, may be
expensive. Consequently, CBO observes that the law would ``make
insurance more portable for some people, [but] it would not
dramatically increase the availability of insurance in general.'' The
controversial question of the extent to which there will be increases
in issuer premiums is discussed more extensively below.
CBO prepared estimates of the direct effects of the provisions of
the legislation included in these regulations (Letter to the Honorable
Bill Archer, August 1, 1996; notes are also from earlier CBO cost
estimates; see table below). The direct cost estimates can reasonably
be read as representing direct benefits as well, since they generally
reflect transfers from a pre-HIPAA payer to a post-HIPAA payer. Certain
medical expenses that individuals would pay out of pocket absent HIPAA
will be paid by insurance programs under HIPAA. In CBO's estimates,
this is reflected as a similar transfer in responsibility for payment
from individuals to insurance programs. However, the actual transfer
would be more complex. For example, to pay the additional claims,
insurers must collect additional premiums, which in turn will be paid
by the individuals gaining greater coverage and (in most cases) by
other covered individuals, or by their employers. CBO's estimates
represent gross costs to plans and gross benefits to individuals, and
do not account for these complexities.
CBO Cost Estimates and Number of People Affected
----------------------------------------------------------------------------------------------------------------
Yearly cost (direct Number of people
Provision cost to private sector) affected Other effects; comments
----------------------------------------------------------------------------------------------------------------
Group: Limiting Length of Pre- $50 million in first 300,000 people ``would Assumes ``surge'' in
Existing Condition Exclusions to 12 year (1997); $200 gain coverage'' at any claims costs; state
Months. million per year in point in time, or 0.3% laws taken into
subsequent years. of people with private account.
employment-based
coverage.
Group: Creditable Coverage Reducing $25 million in first 100,000 people ``would Small No. of people
Pre-Ex. year; $100 million per receive added affected reflects
year thereafter. coverage'' at any ``restrictive
point in time. eligibility
criteria''.
Group: Above two combined............ $300 million...........
(1)Comments: about .2% of total
premiums in group and employer-
sponsored market; but may be
overstated because HMOs, now the
dominant option, often do not use
pre-ex exclusions.
Individual (group-to-individual $50 million............ 45,000 people covered Provisions would apply
portability, no pre-existing by end of first year. in states that
condition exclusion, no denial currently have 5.4
because of health condition, million of estimated
guaranteed renewal). First year 13.4 million people in
estimates. indiv. market (but see
analyses below).
Individual: Subsequent years......... $200 million by fifth ``In about four years, Level of premiums to be
year. the number of people charged is unknown;
covered; would plateau states may limit
at around 150,000''. allowable premiums,
but such limits may
impose indirect costs.
----------------------------------------------------------------------------------------------------------------
Virtually all of the insurance market reform provisions of HIPAA
that are implemented through these regulations have the potential to
increase premiums in the group market. Group plans may have to bear
higher costs because of the statutory limits on pre-existing condition
exclusions and the creditable coverage provisions reducing the
application of permissible pre-existing condition exclusions. CBO has
estimated the total costs of these two provisions at $300 million
annually after full implementation, or 0.2% of total premiums in the
group market. This reflects coverage for services which would have been
excluded under current law due to pre-existing condition exclusions in
insurance contracts, but which would be covered under HIPAA due to
HIPAA's 12-months cap on exclusions and its provisions requiring credit
for prior coverage.
CBO's $300 million cost figure reflects only the costs of the
statute's limits on pre-existing conditions exclusion, and its prior
creditable coverage provisions. It does not include the administrative
costs to plans and issuers of the HIPAA's certification requirement,
which the Department of Labor has measured in its Paperwork Reduction
Act analysis below. Similarly, CBO's $300 million figure does not
include any other increased premium costs that might be associated with
the statute's health status nondiscrimination or guaranteed
renewability provisions. CBO's figure does try to estimate (a) how many
people would benefit from the statute's limits on preexisting condition
exclusions, and its prior creditable coverage provision, and (b) the
average cost to insurers of the extension of coverage to those
individuals.
Preexisting condition exclusion limitation: CBO derived its $300
million figure by estimating that approximately 300,000 people with
private employment-based coverage would gain coverage under the
statute's preexisting condition exclusion limitation provision, at a
direct private sector cost of $200 million per year. CBO adjusted this
estimate to exclude people who reported being limited by a preexisting
condition restriction, but who also had secondary health coverage to
pick up the cost of their preexisting condition. CBO reasoned that
under these circumstances, the preexisting condition exclusion
limitation would not raise the aggregate costs imposed on employment-
based plans. CBO likewise adjusted its estimate to reflect the
existence of state laws which limited preexisting condition exclusion
limitations to one year or less and require that previous coverage be
credited against those exclusions. These state laws generally apply to
group plans of 50 or fewer employees, and do
[[Page 16912]]
not include self-funded health benefit plans subject to ERISA rather
than state laws. Since plans covered by such state laws would not have
to change their provisions as a result of HIPAA, CBO lowered its
initial estimate of the people affected by the bill.
Crediting Prior Coverage: CBO's $300 million figure also includes
an estimate that 100,000 people, at a private sector cost of about $100
million per year, would receive some added coverage as a result of
HIPAA's prior creditable coverage provision.
CBO reports that these estimates are subject to considerable
uncertainty for several reasons. First, they are based on individuals'
responses to surveys, which should be treated with caution. Likewise,
unforeseen changes in the health insurance market, such as changes in
medical costs or the growth of managed care plans, could raise or lower
the direct costs of the law. Increases in medical costs would obviously
raise the costs, while the expansion of HMO penetration in the market
would tend to reduce the law's effect, since HMOs generally do not use
preexisting condition exclusions.
CBO also reports that in particular, distribution of the costs
these provisions would be uneven across health plans. CBO notes that
``[o]nly plans that currently use pre-existing condition exclusions of
more than 12 months would face the $200 million direct costs of the
statute's exclusion limitation.'' Data from a Peat Marwick survey used
by CBO indicate that 2.5% of employees are in such plans. Consequently,
``the costs to health plans that use long preexisting condition
exclusions would be about 4.5% of their premium costs.'' Likewise, only
those plans that use preexisting condition exclusions would face the
$100 million direct cost of the mandate to credit prior coverage
against the preexisting conditions exclusion. CBO reports that ``almost
half of employees are in such plans--implying that the plans directly
affected by this mandate would have direct costs equal to about one-
tenth of one percent of their premiums'' absent the statute.
The increased costs may be shared by insurers, plans, and insured
individuals. Additionally, costs also may be borne directly by plans
that an issuer ``experience rates,'' i.e. the insurer determines rates
according to the utilization of the group being insured. Costs may also
be borne by others insured through an issuer that uses some form of
community rating, which spreads risk over a greater number of ``insured
lives'' beyond the particular group that is the source of the
additional costs. To a certain extent, a group may have a choice in the
degree of burden: if the group knows that its members incur lower costs
than the average of the issuer's pool, the group can avoid a community-
rated pool by becoming self-insured.
There is also the possibility that group market premiums may
increase as a result of the HIPAA reforms in the individual market if
insurers spread the costs of claims in the individual market across a
pool that includes group members. HIPAA expressly provides for this
possibility as one of the elements of an acceptable state alternative
mechanism. (Such issues relating to the individual market are discussed
in more detail below.)
Assuming that the CBO is correct in projecting that the premium
effect translates into 0.2 percent of total premiums in the group
market, a minimal premium effect is likely.
CBO did not quantify the cost of nondiscrimination or special
enrollment provisions.
With respect to nondiscrimination, approximately 135,000 workers
reported in 1993 that they were excluded from their employer's health
plan because of their health, according to DOL tabulations of the April
1993 Current Population Survey. In general, HIPAA would require plans
to offer benefits to such individuals.
With respect to special enrollments, HIPAA provides that
individuals, under certain conditions, are permitted to enroll for
health coverage on the same terms as new participants, rather than as
late enrollees. The conditions triggering eligibility for special
enrollment generally include events in which an individual loses
coverage (such as when a spouse changes jobs when couples legally
separate or divorce) or joins a family that is eligible for coverage
(through marriage, birth, or adoption).
Special enrollment requirements benefit individuals. Absent this
provision, eligible individuals could be subject to pre-existing
conditions exclusion periods of up to 18 months, and therefore would
might need 18 months of prior creditable coverage to fully offset a
preexisting condition exclusion period. Under the provision, eligible
individuals' exclusion periods are limited to 12 months. This special
enrollment provision also permits eligible individuals to enroll
immediately in plans which otherwise prohibit late enrollment, or which
allow late enrollments only during annual open enrollment periods.
Considering some of the major groups that could benefit, the
Departments estimate that 734,000 families would gain eligibility for
special enrollments due to marriage, as would 701,000 due to births,
and 292,000 due to job changes in the family. These estimates, based on
the Survey of Income and Program Participation, reflect an annual count
of such events following which the relevant spouse or new born was
uninsured, or covered under an individual policy or Medicaid.
Special enrollments may result in a marginal increase in aggregate
premiums and claims paid, but no change in average premium levels for
any one individual, since eligible individuals are not likely to have
any higher health care costs than the average new health plan
participant.
In summary, HIPAA's portability and access provisions will result
in a number of direct costs and benefits. These direct costs represent
transfers among parties and not changes in overall social welfare. CBO
estimates that HIPAA's group portability provisions will result in $300
million of additional annual direct costs to insurance programs, which
in turn represents a direct benefit of $300 million in added coverage
for individuals. Additional direct costs and benefits will arise from
similar extensions of coverage under HIPAA's group-to-individual
portability, special enrollment, and nondiscrimination provisions.
Various estimates of the costs and benefits of the group-to-individual
provisions are offered below. Costs and benefits of the special
enrollment and nondiscrimination provisions have not been quantified.
3. Affected Market Segments
(1). Impact on State, Local and Tribal Governments
The statute establishes federal standards and allows for federal
enforcement in an area that has traditionally been the domain of the
states, the regulation of insurance. However, the statute also permits
states to use alternative, state-specific mechanisms to achieve greater
portability and continuity in a manner similar to the federal
standards. Many states have undertaken insurance reforms similar to the
HIPAA provisions and are likely to seek approval for the continuation
of these alternative mechanisms. The statute provides that enforcement
of the requirements of the law will be the responsibility of the states
(for those states implementing alternative mechanisms as well as for
those states implementing the federal standards), unless a state is
unwilling or unable to enforce the law. Only in the latter case of
unwillingness or inability to enforce the law will the federal
[[Page 16913]]
government implement and enforce the law in a given state. It is highly
unlikely that there will be any instance of the federal government
assuming such a role, with the exception perhaps of the territories.
There is no federal financial assistance or resources to implement
these provisions.
The CBO has generally determined that there will be a negligible
impact on these governmental entities, even in the event that, in their
capacity as sponsor of employee health care coverage, they choose not
to ``opt out'' of having certain provisions of the statute apply to
them. HIPAA provides that states and localities that self-insure their
health care coverage for employees, are permitted, under the statute,
to ``opt out'' of the provisions of the law affecting them with respect
to rules governing pre-existing condition limitations. Some entities
that have the option available will ``opt out.'' However, this does not
relieve them of the responsibility of providing certifications of
creditable coverage for their covered individuals. HIPAA does not
preempt state and local government collective bargaining laws. If there
were no opt-out entities, CBO projects that state and local governments
would see an increase in health care costs of less than $50 million, or
0.1% of the $40 billion annually in state and local total health
insurance expenditures.
Those who would benefit from the imposition of HIPAA requirements
on state and local governments are individuals who are subject to a
pre-existing condition exclusion that would have been shortened in
length by HIPAA either under the 12-month limit or the crediting or
prior creditable coverage provision. As the CBO points out, this
benefit (for some) is coupled with a cost to (all covered) individuals
because it is assumed that states and localities would pass the cost
off to their employees through reduced compensation or benefits.
According to CBO, the impact of the law on the states in their
capacity as regulators enforcing new insurance provision is marginal.
For states that have been enacting insurance reform measures in the
small group and individual markets, it could be argued that HIPAA
provides a benefit to the extent that the introduction of federal
standards facilitates the states' ability to continue insurance reforms
in these markets. According to the Intergovernmental Health Policy
Project (IHPP), in a report dated June of 1996, all but two states had
enacted some type of small group market reform, and 35 states had
enacted some type of individual insurance market reform. The presence
of a federal standard that may be viewed as constituting a ``floor'' of
requirements imposed on issuers in these two markets may also benefit
the states.
The individual insurance market has traditionally been regulated by
the states, and Congress intended that, to the maximum extent possible,
the states should continue this regulatory role. To this end, the law
provides states with these options: (1) implement an alternative,
state-specific mechanism to ensure access to individual health care
coverage; (2) adopt and administer the federal standards of HIPAA; or
(3) allow the federal government to administer the law.
In devising the first option, the implementation of an alternative
mechanism, Congress afforded states a good deal of flexibility in
establishing an alternative mechanism. At least 30 states are expected
to implement alternative mechanism, each unique to the state's
demographics and market conditions. States are encouraged to explore
innovative options and intend to afford states as much flexibility as
possible in the design of their alternative mechanisms. Throughout the
process of reviewing proposed alternative mechanisms, the states' need
for flexibility must be balanced with the rights of the individuals
afforded protection under the law.
Our main concern is that the primary goal of HIPAA be achieve: that
eligible individuals are guaranteed coverage in the individual market,
to the extent that policies are available, without a preexisting
condition exclusion period. HHS intends to review states' mechanisms
with this goal in mind; so the information presented should present a
clear picture of the mechanism's impact on eligible individuals. The
information requested in these regulations (section 148.126(h)) closely
parallels the statutory provisions. While such information collection
requirements may impose a burden on each state that chooses to
implement an alternative mechanism, such information is necessary in
order to effectively evaluate the mechanism and ensure that the
mechanism will provide eligible individuals the protection guaranteed
by the law.
The states are unlikely to choose the option whereby the Secretary
(HCFA) implements and enforces HIPAA in the states. Eight states,
however, may choose the ``federal fall-back'' option of incorporating
the HIPAA standards into state law rather than developing an
alternative mechanism.
The statutes provides that a state is presumed to be implementing
an acceptable alternative mechanism as of January 1, 1998, unless the
Secretary of HHS notifies a state of her disapproval of the mechanism
by July 1, 1997. In states where the legislature does not meet in a
regular session between August 21, 1996 and August 20, 1997, the state
is presumed to be implementing an acceptable alternative mechanism as
of July 1, 1998. To our knowledge, only Kentucky qualifies for this
exception. The statute also provides an extension. Before making an
initial determination, HHS intend to make every effort to consult with
the appropriate state officials. After consultation with appropriate
state officials, should there still be cause for disapproval, HHS will
allow the state a reasonable opportunity to revise the mechanism or
submit a new mechanism. Throughout this process, HHS may require
further information from state officials regarding particular aspects
of their insurance market reform. While such requests for information
may also impose an additional burden on the state, this information
will be necessary to insure that the mechanism will provide the
protections guaranteed to eligible individuals under the law.
As required by law, the Secretary of HHS will review each
alternative mechanism every three years. In this respect, the
regulation adheres closely to the statutory burden and merely clarified
that resubmission is required on every three-year anniversary of the
last submission date. HHS has also provided a process for review of
future mechanisms, should a state may wish to revise an existing
mechanism or propose a new mechanism.
In addition to implementing an alternative mechanism, a state may
choose to adopt and administer the federal statutory provisions. Our
regulations in this regard do not differ from the statutory provisions.
As noted above, it is likely that up to eight states would choose this
option.
Finally, a state may choose to allow the federal government to
administer the federal statutory provisions in the state. Although this
is a possibility contemplated in the statute, it is unlikely that any
state would choose this option. However, the impact of the regulations
that implement this option is discussed below.
In states that have an acceptable alternative mechanism for
ensuring access to individual insurance or health care coverage, the
implementation of laws and determination of compliance with those laws
is exclusively a state matter. For other states, HIPAA gives the
Secretary authority to issue
[[Page 16914]]
regulations to carry out the implementation and enforcement of HIPAA
provisions for the states that choose the ``federal fallback'' option
(using federal standards), and for states in which the federal
government will directly administer the HIPAA provisions. These
regulations specify the following:
Documentation that must be submitted to the state (federal
default) or to HCFA (direct regulation by the federal government)
demonstrating compliance with the statute;
The manner in which an insurer markets individual
policies;
The procedure and time frames the issuer follows in
determining whether someone is an eligible individual, and the
effective date of the individual's coverage;
The procedure to follow for a request to limit enrollment
in the case of an HMO's or insurer's capacity limitations (network
capacity or financial capacity); and
The procedure for determining whether the benefit packages
offered in the individual market are consistent with statutory
requirements.
In states electing the federal fall-back approach, the state
determines the level of documentation required to establish compliance
with the HIPAA provisions. The Departments do not know the extent of
burden states will impose on plans as a result of HIPAA. Although there
is not likely to be direct federal enforcement in any state, in those
states in which HCFA does administer the law, issuers have 90 days
after July 1, 1997, to provide documentation concerning individual
policy forms the issuer already markets; and 90 days prior to the
beginning of the calendar year prior to marketing a new policy form.
With regard to these time frames, the 90-day period should not be
burdensome. Much of the information required to be submitted regarding
the policy forms in the individual market is material the issuer will
generally have filed with a state insurance commissioner (``information
on all products offered in the individual market''; marketing material,
often submitted to states on a ``file and use,'' or informational
basis). For such information the submission to the federal government
is burdensome only in that it is duplicative of material given to the
state. The HIPAA-specific materials are generally not duplicative and
constitute a burden on issuers to provide HCFA with the following
information:
An explanation of how the issuer is complying with the
provisions of HIPAA, including how the issuer will inform eligible
individuals of available policy forms;
Premium volumes or actuarial values (depending on which
election is made regarding compliance with rules on the type of policy
to be offered); and
A description of the risk spreading/financial
subsidization mechanism to be used for individual policy forms.
The last two items represent requirements of the statute, while the
first item is necessary to ensure that there is effective
implementation of the statute. For the first item, issuers will have to
become familiar with the provisions of HIPAA in order to comply with
the documentation requirement, which can be a considerable burden, but
the other information requirements should not be burdensome. One way in
which these regulations lessen the burden for plans electing to offer
``representative coverage'' rather than the most popular policy forms
is by not prescribing the method of determining the actuarial value of
representative coverage. Issuers may make their own determinations of
actuarial value and present them to HCFA for verification.
(2). Impact of the Law in Different States
The impact of the law on individuals, employers, group plans, and
issuers may vary somewhat from state to state. Many state reforms
resemble HIPAA's portability provisions, often meeting or exceeding
particular HIPAA standards. The CBO notes that it ``lowered its initial
estimate of the number of people affected by the bill'' in recognition
of such state reforms. Where state laws resembling HIPAA exist, the
marginal impact of HIPAA is reduced.
The degree to which a state's reforms lessen the impact of HIPAA's
portability provisions depends on the degree to which the state's
requirements exceed these provisions, and on what proportion of insured
individuals in the state are covered by the state's reforms. In
general, individuals not covered by state reforms are those enrolled in
programs for which such state reforms are preempted by federal law.
These include individuals enrolled in federal programs such as Medicare
and the Federal Employees Health Benefits Program or in self-insured
ERISA plans. Individuals enrolled in ERISA plans that are not self
insured are covered by such state reforms that are specifically saved
from preemption by HIPAA.
According to a study by Jacob Klerman of RAND, New Estimates of the
Effect of Kassebaum-Kennedy's Group-to-Individual Conversion Provision
on Premiums for Individual Health Insurance (1996), 42 states have
guaranteed issue rules in the individual market or a high-risk pool
that could qualify the states as meeting the alternative mechanism
requirements of HIPAA. This is consistent with other information the
Departments have received to the effect that only eight states may
adopt the federal HIPAA standards (to be administered by the states).
(The individual market issues are discussed in greater detail below.)
An analysis prepared by staff of the Pension and Welfare Benefits
Administration (PWBA) of the Department of Labor found, for the group
market, that 41 states have small group guaranteed issue; of that
number five do not conform with (or are not more generous than) HIPAA
rules on guaranteed issue, and 21 define a small group differently from
HIPAA by starting the small group category at three individuals (rather
than HIPAA's two)--the situation in 11 states--or by extending the
provisions to groups not reaching HIPAA's 50 (4 states define a small
group as up to 49; one as 40; and ten as either 24 or 25). These states
are likely to make relatively small changes as necessary to conform
their laws to HIPAA standards. The National Association of Insurance
Commissioners has also engaged in extensive efforts to help the states
conform their laws.
Thirty-one states already have provisions which require that group
health plans offer additional enrollment opportunities to employees
under circumstances similar to HIPAA's special enrollment
opportunities. The statute expands the state baseline by adding legal
separation as a grounds for special enrollment eligibility, and
expressly includes COBRA as prior group health coverage. The statute
further requires retroactive coverage for newborns and adopted children
if special enrollment is requested within 30 days of birth, placement
for adoption, or adoption. Current state requirements reduce the
overall economic impact of the special enrollment requirements on the
group health market.
For pre-existing conditions limitations in group health plans,
HIPAA provides that the maximum allowable period is 12 months (``look-
forward''), or 18 months for a late enrollee (someone enrolling outside
of an initial or special enrollment period) for conditions arising
within the six months (``look-back'') preceding the enrollment date in
a group health plan. HIPAA also provides that prior coverage for which
there was not a break in coverage of 63 days or more would be credited
against the pre-existing condition exclusion. Using the PWBA analysis
and information from the IHPP,
[[Page 16915]]
as of mid-1996, 30 states had time limits on pre-existing condition
exclusion periods that are the same as, or more favorable to
individuals, than the HIPAA provisions for the group market; and 14
other states have limits on pre-existing condition time limits. Among
these 44 states, ten states allow crediting or prior coverage for which
the duration of the break in coverage equals or exceeds 63 days (more
generous than HIPAA); eight states allowed breaks in coverage of 60
days; 18 states allowed 30 or 31 days of a break in coverage; and four
states had no crediting of prior coverage. State laws which exceed
HIPAA standards will not be pre-emptied by HIPAA.
(3). Group Plans
HIPAA sets minimum standards for all group health plans, including
self-funded plans that are shielded by ERISA from states' HIPAA-like
requirements. The General Accounting Office has estimated that about
27% of the Nation's population received health care coverage through
ERISA self-funded plans (17%).
Although the GAO report indicated that the number of people covered
by self-insured plans is increasing, other data indicate that there has
been a decline in such coverage because of the increasing number of
individuals covered by HMOs that operate as insured plans. However, an
HMO network may constitute an exclusive provider organization for a
self-insured plan. Liston and Patterson (Analysis of the Number of
Workers Covered by Self-Insured Health Plans Under the Employee
Retirement Income Security Act of 1974--1993 and 1995, prepared for the
Henry J. Kaiser Family Foundation, August 1996) found that from 1993 to
1995 the number of Americans covered by fully or partly self-insured
plans declined from 37.6 million to 32.5 million (a 14% decline). The
rate of decline was greatest in smaller firms: for firms with fewer
than 100 workers, the number of workers covered under fully or
partially self-insured plans declined form 8.2 million to 5.4 million
(a 34% decline). For firms with 25 or fewer employees, the numbers
declined from 2.9 million to 2.2 million from 1993 to 1995 (a 24%
decline).
The relevance of these numbers to an analysis of HIPAA has to do
both with the number of people that can potentially benefit from the
HIPAA provisions (if the employees moving to ERISA-insured plans are in
states that already have provisions similar to HIPAA, effects will be
smaller), as well as the related issue (partially a consequence of the
former) of the extent to which the small group market in a given state
may be ``disrupted'' because of the effects of HIPAA. (For example,
will the HIPAA provisions create a situation in which either insurers
will abandon markets or employers will discontinue health care
coverage?) Although the Departments' economic impact analysis does not
contain a state-by-state analysis of the relationship between employees
covered under self-insured plans (and any changes in those numbers) and
the states that have reforms similar to HIPAA, Liston and Patterson
found that the South was the only region of the country in which there
was an increase in the number of employees covered by self-insured or
partially self-insured (reflecting the lower penetration of HMOs in
Southern states). Data about individual states do not appear to be
available. A recent GAO report notes that ``no analysis exists on the
number of individuals affected by these state [insurance] reforms''
(Health Insurance Portability: Reform Could Ensure Continued Coverage
for Up to 25 Million Americans, HEHS-95-257, September 1995).
For 1995, the South (stretching, under the Liston-Patterson
definition, from the South Atlantic states to the West South Central
states of Arkansas, Louisiana, Oklahoma and Texas) had 35% of all
employees covered by self-insured or partially self-insured plans,
while those same states had 30% of the private-sector employees with
health care coverage. Three of the seven states that had no pre-
existing condition limitations regulations in the PWBA analysis were
Southern states; of the 11 states that had no guaranteed renewal
provisions for group health plans, four were in Southern states. It
would appear then, that to the extent that practices in the ERISA small
group market in Southern states diverge significantly from HIPAA
provisions employers will have to adhere to, there are possible major
impacts of HIPAA in those markets.
(4). The Individual Insurance Market
In the individual insurance market the statute provides for
guaranteed issue of a policy to ``eligible individuals'' (individuals
coming from the group market, who have 18 months of aggregate
creditable coverage, from any of various types of health care
coverage). In addition to this guaranteed issue requirement, insurers
are not permitted to apply any per-existing condition exclusions to
this group. Individual policies are guaranteed renewable except under
certain circumstances. The statute does not place any limits on the
premiums insurers may charge for the policies made available to
eligible individuals. States are permitted to have alternative
mechanisms that achieve the same ends as the HIPAA requirements, though
any alternative is required to have no pre-existing condition
exclusions.
The individual insurance market reforms are of greatest benefit to
individuals who voluntarily or involuntarily leave their jobs and wish
to maintain some level of health insurance. As discussed above, the
availability of individual insurance may decrease ``job lock'' by
allowing people to maintain continuous protection as they move between
jobs. Individuals who enter the individual market from the group market
may choose to do so because their new employer may not offer insurance
or the employer's coverage is limited; or they may expect to be without
a job for a period of time (for example, because they are ``early
retirees'' who do not yet have Medicare entitlement and do not have
employment-based retiree health care coverage). The CBO projects, in
data cited above, that the number of people benefiting from the HIPAA
(getting coverage when it would have been denied absent HIPAA)
individual market reforms would ``plateau'' at the 150,000 range by the
fourth year of the law. The GAO (HEHS-95-257, cited above) determined
that about two million people each year could convert to individual
insurance from group coverage, based on turnover rates among small
employers and rates of COBRA continuation of coverage.
Individual market premium effects vary by state. In state
regulatory activity, fewer states have provisions similar to HIPAA's in
the individual market as compared to state reforms in the small group
market. HIPAA will affect the individual insurance markets in many
states. The RAND and IHPP data indicate that only eleven states have
guaranteed issue laws for the individual market. Eight additional
states have an insurer (Blue Cross-Blue Shield) offering open
enrollment in the individual market. Twenty-three states have laws
limiting the period of pre-existing condition exclusions, but only one
state allows no such exclusion period, with most states allowing a 12-
month exclusion period with a 6- or 12-month ``look back.''
One of the most contentious issues in discussions of HIPAA's effect
on the individual insurance market has been the issue of premiums in
that market. HIPAA does not impose any rating requirements on insurers
in the
[[Page 16916]]
individual market, meaning that the insurers are free to price their
individual products in any manner that is consistent with state law.
IHPP data show that for the individual market, seven states have rating
bands (premiums must be within certain upper and lower bounds in
relation to a ``standard'' premium), and eight states require community
rating of some form (a form of rating that can be roughly described as
rating across a larger pool of insured individuals, for example, across
all of an issuer's insured individuals, across defined age categories,
etc.). Rating bands and community rating requirements have the same
intended effect as HIPAA, to increase the availability of insurance,
but they additionally seek to assure affordable coverage. There will be
interactions between the HIPAA approach to increased availability
(guaranteed issue and elimination of pre-existing condition exclusions
for certain individuals with prior coverage) and the rating approach in
those states in which guaranteed issue rules and pre-existing condition
exclusion rules differ from HIPAA's provisions.
Affordability of individual coverage is a significant issue with
HIPAA. The Health Insurance Association of America (HIAA) has projected
that the individual market reform provisions of HIPAA will cause an
eventual 22% increase in premiums in that market (``The Cost of Ending
`Job Lock' or How Much Would Health Insurance Costs Go Up If
`Portability' of Health Insurance Were Guaranteed?'', February 20,
1996). HIAA projects, on that basis, that eventually 500,000 to one
million people would leave the individual insurance market because of
rate increases necessitated by the HIPAA reforms. HIAA bases this
estimate on the current number of people insured in the individual
market, the number of new entrants in the market, their costs, and the
price-sensitivity of purchasers of insurance.
Other studies have arrived at conclusions that are very different
from the HIAA conclusions. The main difference with other studies is
that HIAA assumes that HIPAA will cause states to impose restrictions
on the level of premiums insurers may charge in the individual market.
There are no such requirements in HIPAA. The HIAA assumes that people
currently covered in the individual market will be included in the
rating pool that includes individuals who are newly insured under HIPAA
provisions. The American Academy of Actuaries (AAA), for example, found
that the premium increases in the individual market would be in the
range of two to five percent, and the increases would take effect over
a longer time span that one year. The AAA took into account current
state laws, including state laws related rate restrictions in the small
group market.
Jacob Klerman, or RAND, examined HIAA's assumptions and methodology
and found that (a) using HIAA's assumptions, but employing more up-to-
date or otherwise improved data (``better estimates of the underlying
figures''), the increase in individual premiums would be 5.7%; and (b)
using different assumptions, the premium effect would be 2.3% and may
be as little as 1% or less (New Estimates of the Effect of Kassebaum-
Kennedy's Group-to-Individual Conversion Provision on Premiums for
Individual Health Insurance, RAND, 1996). For the latter projections,
Klerman assumed a different level of claims costs for new entrants
(150%, based on studies of the costs for COBRA continuation policies,
versus the HIAA's 200%), that the premium pricing for the new policies
would not be pooled with others in the individual market, and that
state laws would have effects that the HIAA analysis did not consider.
Note that, as with the GAO report quoted above, these analyses are
based on an earlier version of an insurance reform bill, S. 1028, in
which the guaranteed issue was available only to those with 18 months
of group coverage. This analysis does not measure how many more people
are encompassed in the larger HIPAA ``eligible individual'' group
comprising individuals whose last type of coverage was group coverage
but who had prior coverage during the 18-month period from a different
source; this will slightly increase the cost.
Another study, done for HHS, by Actuarial Research Corporation
(ARC), had results that were similar to the RAND results. ARC projects
possible increases in individual premiums ranging from 1.4 percent to
2.8 percent.
K. Statutory Provisions Affecting Administrative Processes
While these rules implement the statute's goal of expanding
coverage and portability of coverage by reducing the use of pre-
existing condition exclusions, for purposes of performing this economic
impact analysis, it is appropriate to break the regulations down into
the following components: certifications and notices informing
individuals of their right to request a certification; notification of
the application of a pre-existing condition exclusion period;
alternative methods of crediting coverage; and guidelines for
implementing the statue's special enrollment requirements. The notice
and notification requirements are largely a result of this rulemaking.
The certification requirements are largely prescribed by HIPAA, with
certain aspects that mitigate the impact of the statute resulting from
this rulemaking. While the alternative method of counting compliance is
authorized by HIPAA, the classes and categories of coverage to be
measured were created at the discretion of the three Departments.
1. Staggered Effective Dates
In general, the effective dates of HIPAA's group health plan
provisions are tied to plans' fiscal years and to the expiration of
collective bargaining agreements under which some plans are maintained.
Provisions whose effective dates are so tied included those pertaining
to pre-existing condition exclusions, crediting prior coverage, and
special enrollments. (The effective dates of HIPAA's certification
provisions are not so tied.) Non-collectively bargained plans become
subject to these provisions of HIPAA in the first plan year beginning
on or after the July 1, 1997. Collectively bargained plans become
subject the first plan year beginning on or after the later of July 1,
1997 or the expiration of a collective bargaining agreement that was in
place prior to HIPAA's date of enactment, August 21, 1996.
More than one-half of plans begin their fiscal years on January 1.
Therefore, there is a large concentration of plans and participants
that become subject to HIPAA in January 1998. Overall, the proportions
of participants and plans (respectively) that become subject to HIPAA
in 1997 are 15 percent and 24 percent; in 1998, 68 percent and 69
percent; in 1999, 11 percent and 4 percent; and in 2000, 5 percent and
2 percent.
The compliance costs of these regulations regarding certification
and notice, pre-existing condition exclusion notification, and notice
of enrollment rights was estimated based upon information in the public
domain and data available to the Departments on industry practices. To
derive data on health coverage and employment shifts of individuals,
for the purposes of this analysis the Departments referred to data
collected from the Census Bureau's Current Population Survey and Survey
of Income and Program Participation, as well as the National Health
Interview Survey and the Department of Labor's database of 1993 Form
5500 information, the most current available. Supplemental data on
employer-sponsored health care was obtained
[[Page 16917]]
from the Peat Marwick Benefits Survey and the BLS Employee Benefits
Survey.
2. Initial vs. Ongoing Costs
Costs may be separated into initial costs and ongoing costs.
Initial costs of the new certification, notice, pre-existing condition
exclusion notification, and special enrollment requirements have
several components, including capital costs of preparations for
collecting information such as purchasing or upgrading computers and
software, and record storage facilities. Initial costs may also be
expected to include programming or reprogramming automated systems to
track periods of prior creditable coverage, and to track plan
participants and the type of coverage they hold, e.g. individual or
family coverage. Initial costs also include up-front expenditures for
revisions of plan documents to comply with the new statutory and
regulatory requirements. These costs were annualized over the estimated
``life'' of the regulation, 10 years, in order to show such costs on an
annual basis. It is estimated that the 15,604 plans that will process
certifications internally (rather than use a service provider) will
incur an average cost of $5,000 per plan to revise their automated
records systems to accommodate this information for a total cost of $78
million over 10 years beginning in 1997. Presented here as direct
costs, initial costs are a component of overall social costs.
Ongoing expenditures incurred annually include the costs to group
health plans, health insurance issuers and self-funded plans of
performing the continuing administrative tasks of calculating periods
of creditable coverage, printing forms for notices, preparing an
original and a copy of notices and certifications for participants with
dependants having identical coverage, and mailing these documents to
individuals. Also included in ongoing expenditures is the cost to plans
which use pre-existing condition exclusions to notify participants of
the plans' provisions, and calculating periods of pre-existing
condition exclusions for new participants, and issuing an
individualized notification, as necessary, to each individual who would
be subject to a pre-existing condition exclusion of any duration. Total
annualized initial costs and ongoing costs were aggregated to estimate
total annual costs.
3. The Certification Process
The statute specifies that every individual leaving a group health
plan, ending COBRA coverage, ending individual insurance coverage, or
leaving other types of health coverage must receive a written
certification of creditable coverage containing specific information
about the individual and his or her coverage, including information on
the coverage of dependents. This requirement constitutes a burden in
information collection and processing.
Despite recent incremental state reforms in the laws affecting the
group health insurance market, no states have required group health
plans or health insurance issuers to provide participants and their
dependents with certifications or notices regarding prior health
coverage. Therefore, the statute imposes discrete new burdens on all
group health plans and health insurance issuers in connection with
providing certifications, and issuing to individuals of their right to
receive a certification.
Respondents preparing certification forms must collect the
appropriate information about a person, prepare a certification form,
and, in most cases, mail the information. One certification can serve
to provide information about dependents covered under the same policy.
The respondent may have to prepare multiple certification forms for an
individual, or for dependents, in the event that the certificate is
lost or misplaced. The process may require the development of new
information systems or, more likely, modifications to existing
information systems, to collect and process the necessary information.
The statute makes the certification requirement a key
implementation component of the portability provision in both the group
and individual markets.
The cost of providing certifications for private group plans
(absent the regulatory relief described below) is estimated to be at
least $98 million for 69 million certifications in 1997 and $84 million
for 59 million in each subsequent year. Absent transition relief
provided under the regulations, early year costs could be far higher.
The direct cost of certifications contributes to the overall social
cost of the statute.
L. Impact of Regulatory Discretion
These regulations mitigate the impact of the statutory requirements
on the regulated public, while preserving protections, in several ways.
These regulations will reduce implementation costs.
The Departments exercised discretion in connection with group plan
provisions, as follows:
First, intermediate issuers will not have to issue a certification
when an individual changes options under the same health plan. In lieu
of the certification, they could simply transfer the start and stop
dates of coverage to the plan. An individual would retain the right to
get a certification upon request if they leave the plan.
Second, telephonic certification will fulfill the requirement to
sent a certification if the receiving plan and the prior plan mutually
agree to that arrangement. The individual can always get a written
certification upon request.
Third, the requirement to send certifications on June 1, 1997 to
those who have left plans between October 1, 1996 and May 31, 1997 can
be satisfied by sending a notice; the Departments have offered a model
notice in these regulations for that purpose.
Fourth, until July 1, 1998, plans and issuers that do not collect
individual information on dependants can comply with the requirement to
send each dependant a separate certification by simply listing the
category of coverage (e.g., individual, spouse or family).
Fifth, in situations where the issuer and the plan contract for the
issuer to complete the certifications, the plan would not remain liable
if the issuer failed to send the certifications.
Thus, plans would not need to keep data and files on this
information.
Sixth, the period of coverage listed on automatic certifications
will only be the last continuous period of coverage without any break.
This is the most efficient and simplest method of record keeping for
plans and issuers.
Seventh, the period of coverage contained in the on-request
certification will be all periods of coverage ending within 24 months
before the date of the request. Essentially, a plan may simply look
back two years and send copies of any automatic certifications issued
during that period.
The above reductions in burdens on plans and issuers may cause more
frequent circumstances in which participants are required to prove
creditable coverage and the status of their dependants. In order to
help offset some of the additional burdens that will be shifted to the
participants, the regulations provide the following protections:
First, if an individual is required to demonstrate dependent
status, the group health plan or issuer is required to treat the
individual as having furnished a certificate showing the dependent
status if the individual attests to such dependency and the period of
such status, and the individual cooperates with the plan's or issuer's
efforts to verify the dependent status.
[[Page 16918]]
Second, a plan shall treat an individual as having furnished a
certificate if the individual attests to the period of creditable
coverage, and the individual also presents relevant corroborating
evidence of some creditable coverage during the period and the
individual cooperates with the plan's efforts to verify the
individual's coverage.
Third, plans and issuers that impose preexisting condition
exclusions periods must notify participants of this fact. They must
also explain that prior creditable coverage can reduce the length of a
preexisting condition exclusion period and offer to request a
certification on the participant's behalf. An exclusion may not be
imposed until this notice is given. This is beneficial to participants
insofar as it forewarns them of potential claim denials and enables
them to more easily exercise their right to protection from such
denials under HIPAA's portabliity provisions.
Fourth, a plan that imposes a preexisting condition exclusion must
notify a participant if the individual's creditable coverage is not
enough to completely offset the exclusion period, and give the
individual the option to provide additional information. An exclusion
may not be imposed until this notice is given. This provides
participants an opportunity to correct any failure to establish credit
for prior coverage before a claim is denied.
Under the regulation, in the group health plan enrollment materials
ordinarily provided to most new participants, plans that contain pre-
existing condition exclusion provisions must also provide notice that
the plan contains these provisions, that the participant has the right
to prove prior creditable coverage, including the right to secure a
certificate from a prior plan or issuer, and that the new plan will
assist in obtaining the certificate. Those plans using the alternative
method of crediting coverage also must disclose their methods to the
participant, including an identification of the categories of coverage
used.
In addition, a plan seeking to impose a pre-existing condition
exclusion on a participant or dependant must inform them in writing of
the determination that they lack adequate prior coverage, and provide
an opportunity for the individual to submit additional materials
regarding prior creditable coverage, and provide an explanation of any
appeals procedure.
The annual cost of these disclosure procedures to private group
plans is estimated to be $280,000 in 1997, $2.1 million in 1998, and
$1.9 million in 1999 (about 20 cents per notice). The same costs for
state group plans would be $25,500, $51,000, and $51,000, respectively.
For local plans, they would be $42,000, $84,000, and $84,000. The
Departments believe the marginal burden of the notice will be modest
because, irrespective of the notice requirement, under the statute
plans must make this determination before imposing a preexisting
condition exclusion. Comments are encouraged as to whether this
assumption is appropriate. These costs do not include any burdens
attributable to the use of the alternative method of crediting
coverage, since it is assumed that any plans incorporating this method
will do so only if the net cost is less than using the standard method.
Under the alternative method of crediting coverage, the regulation
allows the prior plan to charge the receiving plan using the
alternative method for the reasonable costs of providing evidence of
classes and categories of prior health coverage.
On balance, to the extent that the Departments have exercised
regulatory discretion, they have acted to reduce compliance costs. This
is particulary true with respect to the certification process.
These regulations attempt to reduce the burden of certifications by
limiting the amount of information that needs to be reported and
offering a model form that can be used to satisfy the requirement of
the law. In the absence of a written certification, the regulations
allow for alternative means of establishing creditable coverage, which
includes having the individual present documentation of coverage or
conducting telephone verification with the entity that previously
covered the individual.
During a transition period, respondents may provide individuals
with a notice that they have the right to receive a certificate of
creditable coverage, a requirement that can be met by including the
information in an evidence of coverage or other generic document
individuals receive that contains information about their policy. This
notice may be provided in lieu of a certificate for events that occur
on or after October 1, 1996 but before June 1, 1997.
The cost to issuers of the certification requirement is primarily
in the paperwork production of the certification form. All health
insurance issuers are likely to have the kinds of systems in place to
be able to produce the information necessary for a certification,
although there will be moderate systems start-up costs, and some
systems modifications for insurers and HMOs. Systems modifications may
also be necessary to retain the data for the certificates for several
years, but, like the other requirements, this burden should also be
limited. The model certification form of the Preamble contains the kind
of information that is routinely used as the basis for claims
processing by a health insurance issuer or by an HMO (for example, in
adjudicating an out-of-network claim).
For example, in order to deny a claim dating from a period prior to
the beginning date of coverage of a particular individual, the issuer's
information system could determine that (1) a particular individual was
covered by the issuer; (2) the issuer identification number submitted
with the claim is correct; (3) the individual was insured on the date
the health care service was provided; (4) the service was provided
during a waiting period or affiliation period before coverage was
available; and (5) coverage may have ended prior to the date of
service. The issuer's information system would also determine the
limitations of coverage (e.g. high or low option coverage, with or
without specific riders). The remaining information of the
certification form could also be available to the issuer, especially
for COBRA-eligible individuals: whether COBRA continuation coverage is
involved (given that the premium is charged directly to the individual
at a specified rate); the beginning and ending dates of coverage and
waiting periods; and the name, address, phone number and contact person
(or Department) for information.
Respondents may need to modify their systems to determine whether,
for a given insurer's coverage of a particular individual, there was a
63-day period of interrupted coverage for purposes of specifying this
information on a certification form. As noted above, the Departments
have taken into consideration the difficulties insurers have in
identifying dependents under family coverage, and the regulations make
appropriate accommodations, in recognition of the need for a transition
period during which information about dependent coverage information
may be unavailable from issuers.
The cost of producing and issuing certifications (or notices in
lieu of certifications where permitted) for private group plans is
estimated to be $57 million for 53 million certifications in 1997, $64
million for 44 million in 1998, and $66 million for 44 million in each
subsequent year. Medicaid programs would provide 10 million
certifications annually at an annual cost of $600,000. Medicare would
issue
[[Page 16919]]
92,000 annually at a cost of $115,000. (Should HHS decide to allow the
Medicare award and termination letters to suffice as certifications,
then there would be no cost to the Medicare program for the HIPAA
certification requirements.) By 1999, the annual cost and volume would
total $500,000 and 200,000 for OPM, $2.9 million and 1.9 million for
state plans, and $6.1 million and 4.1 million for local plans, and $4.7
million and 2.9 million for individual market issuers.
Relative to the cost implied by the statute alone, regulatory
provisions directed at the certification process reduce private group
plans' cost of compliance by a minimum of $41 million (or 42 percent)
in 1997, $20 million (or 24 percent) in 1998, and $18 million (or 21
percent) in 1999 and later years, through the creation of transitional
rules, safe harbors and good faith compliance periods. The regulation
acts to reduce parallel burdens on issuers and state and local
government group plans in similar proportion.
In another discretionary provision, these regulations require group
plans to notify eligible new employees of their special enrollment
rights. This provision is necessary to make sure employees are
sufficiently informed to exercise their rights within the 30-day window
provided in the statute. The cost of this disclosure is expected to be
small, since it is a uniform disclosure that can accompany ordinary
materials provided to new participants. In order to minimize the
burden, the preamble to these regulations provides model language for
the notice adequate for meeting the statutory obligation. The cost,
which would reach $1.72 million in 1999 for private group plans, is
described in the PRA analysis. In 1999, the cost for State plans would
reach $167,000; the cost for local plans would reach $290,000.
The direct cost of certifications and notices contribute to the
overall social cost of the statute and regulations.
HHS has exercised regulatory discretion regarding two specific
provisions that will be enforced exclusively by HHS (also referred to
as the ``non-shared group market'' provisions).
These two areas are as follows:
Guaranteed Availability of Coverage for Employers in the PHS Act Group
Health Market Provisions
The group market provisions include rules relating to guaranteed
availability of coverage for employers in the small group market that
are only in the PHS Act (not in ERISA or the Code). Section 146.150 of
the HHS regulations implements section 2711 of the PHS Act. In general,
this section requires health insurance issuers that offer coverage in
the small group market to offer all policy forms to any eligible small
employer and to accept for enrollment every eligible individual without
regard to health status. HHS has interpreted this guaranteed
availability requirement to apply to all products offered in the small
group market. Some States and issuers argue that the statute would
permit guaranteed availability of an issuer's basic and standard plan,
as opposed to all products offered by the issuer in the small group
market. HHS does not agree with this interpretation and have proposed
our interpretation in the regulation. Depending upon State law, this
decision may provide the benefit of additional choices to small
employers purchasing coverage in the small group market, while adding
some potential costs for issuers offering coverage in the small group
market.
Exclusion of Certain Plans From the PHS Act Group Market Requirements
The group market provisions also include rules under which certain
plans are excluded from the group market provisions that are only in
the PHS Act (not in ERISA or the Code). Section 146.180 of the HHS
regulations implements section 2721 of the PHS Act. Section 146.180(b)
includes rules pertaining to non-federal governmental plans, which are
permitted under HIPAA to elect to be exempted from some or all of
HIPAA's requirements in the PHS Act. HHS has exercised regulatory
discretion by prescribing the form and manner of the election and the
contents of the notice. HHS has also required a non-federal
governmental plan making this election to notify plan participants, at
the time of enrollment and on an annual basis, of the fact and
consequences of the election. HHS has exercised this regulatory
authority in order to ensure adequate documentation of a non-federal
governmental plan's proper and appropriate election without placing an
undue burden on the plan. In addition, HHS has provided a non-federal
governmental plan the flexibility to elect to opt out of specific
provisions of the statute and have allowed for this flexibility in the
contents of the notice. The cost of providing these notices for non-
federal governmental would range from $79,000 to $158,000 in 1997 and
from $158,000 to $315,000 in 1999.
HHS has also exercised regulatory discretion in connection with
individual market provisions by specifying that college health plans
are treated as bona fide associations. Since, under HIPAA, coverage
offered through a bona fide association is creditable coverage,
individuals covered under a college plan would receive credit for this
coverage. However, because this coverage is offered though a bona fide
association (as defined in Part 144 of the group market rules), the
issuer benefits because it does not have to make the coverage available
in the individual market to eligible individuals, and does not have to
renew coverage for a student who leaves the association. This
regulatory provision is expected to minimally disrupt business
practices for those college plans.
HHS also exercised regulatory discretion in connection with
individual market provisions. When an eligible individual applies for
coverage in the individual market, the effective date of such coverage
is deemed, in the regulations, to be the date on which the individual
applies for such coverage, and assuming the individual's application
for coverage was accepted.
The impact of this regulatory provision is that an individual who
wishes to maintain creditable coverage may delay, for up to 63 days, an
application for coverage in the individual insurance market, especially
if he or she is assured of being covered by an issuer (e.g., if the
person is guaranteed issuance of an individual product as an individual
coming from group coverage, under the Act's guaranteed availability
provisions). The individual may forego medical treatment during the 63-
day period of non-coverage, resulting in a deterioration of health on
entering the new health plan, with a potential for greater costs
incurred by the insurer or health plan.
The regulation could have required that the individual apply for
coverage within a reasonable time period in advance of the 63-day
period, such as 30 days after the end of prior coverage (which is
similar to the statutory requirement for a request for enrollment in a
group health plan following exhaustion of COBRA coverage or other
exhaustion of coverage); or, the insurer could have been required to
begin coverage within some specified time period after application.
However, the approach taken in the regulation is consistent with
statutory provisions regarding the treatment of waiting periods or HMO
affiliation periods, which the statute specifically excludes from being
considered breaks in coverage. The regulatory provision also accords
the same status to all individuals in any circumstance by making a 63-
day period the maximum during which an individual can be
[[Page 16920]]
without coverage and still receive credit for creditable coverage.
M. Paperwork Reduction Act--Department of Labor and Department of the
Treasury
The Department of Labor and the Department of the Treasury have
submitted this emergency processing public information collection
request (ICR), consisting of three distinct ICRs, to the OBM for review
and clearance under the Paperwork Reduction Act of 1995 (Pub. L. 104-
13, 44 U.S.C. Chapter 35). The Departments have asked for OMB clearance
as soon as possible, and OMB approval is anticipated by or before June,
1, 1997.
These regulations contain three distinct ICRs. Two of them
(Establishing Prior Creditable Coverage and Notice of Enrollment
Rights) are prescribed by the statute.
The first ICR implements statutorily prescribed requirements
necessary to establish prior creditable coverage. This is accomplished
primarily through the issuance of certificates of prior coverage by
group health plans or by service providers that the group health plans
contract with in order to provide these documents. In addition, this
ICR permits the use of a notice that may be used by the plans to meet
their obligations in connection with periods of coverage ending during
the transition period, October 1, 1996 through May 31, 1997, saving the
respondents both hours and cost during that period. This ICR also
covers the requests that certain plans will make regarding additional
information they require because they are using the Alternative Method
of Crediting Coverage. Finally, this ICR also includes the occasional
circumstances where a participant is unable to secure a certificate and
needs to provide some supplemental form of documentation in order to
establish prior creditable coverage.
The second ICR, Notice of Special Enrollment Rights, implements the
statutorily prescribed disclosure obligation of the plans to inform a
participant, at the time of enrollment, of the plan's special
enrollment rules.
The third ICR, Notice of Pre-Existing Condition Exclusion, concerns
the disclosure requirements on those plans that contain pre-existing
condition exclusion provisions. This ICR has two components: a notice
to all participants at the time of enrollment stating the terms of the
plan's pre-exisiting condition provisions, the participant's right to
demonstrate creditable coverage, and that the plan or issuer will
assist in securing a certificate if necessary; and notice by the plan
of its determination that an exclusion period applies to an individual.
1. Establishing Prior Creditable Coverage
i. Department of Labor
The Department of Labor, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance consultation
program to provide the general public and federal agencies with an
opportunity to comment on proposed information collection requests
(ICR) in accordance with the Paperwork Reduction Act of 1995 (PRA 95)
(Pub. L. 104-13, 44 U.S.C. chapter 35) and 5 CFR 1320.11. This program
helps to ensure that requested data can be provided in the desired
format, reporting burden (time and financial resources) is minimized,
collection instruments are clearly understood, and the impact of
collection requirements on respondents can be properly assessed.
Currently, the Pension and Welfare Benefits Administration is
soliciting comments concerning the proposed new collection of
Establishing Prior Creditable Coverage.
Dates: Written comments must be submitted to the office listed in
the addressee section below on or before May 31, 1997. In light of the
request for OMB clearance by June 1, 1997, submission of comments
within the first 30 days is encouraged to ensure their consideration.
The Department of Labor is particularly interested in comments
which:
evaluate whether the proposed collection is necessary for
the proper performance of the functions of the agency, including
whether the information will have practical utility;
evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
enhance the quality, utility, and clarity of the
information to be collected; and
minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submissions of responses.
Addressee: Gerald B. Lindrew, Office of Policy and Research, U.S.
Department of Labor, Pension and Welfare Benefits Administration, 200
Constitution Avenue, Room N-5647, Washington, DC 20210. Telephone: 202-
219-4782 (this is not a toll-free number). Fax: 202-219-4745.
ii. Department of the Treasury
The collection of information is in Section 54.9801-5T. This
information is required by the statute so that participants will be
informed about their rights under HIPAA and about the amount of
creditable coverage that they have accrued under a group health plan.
The likely respondents are business or other for-profit institutions,
non-profit institutions, small businesses or organizations, and Taft-
Hartley trusts. Responses to this collection of information are
mandatory.
Books or records relating to a collection of information must be
retained as long as their contents may be come material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Comments on the collection of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of the Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, T:FP, Washington, DC 20224.
Comments on the collection of information should be received by May 31,
1997. In light of the request for OMB clearance by June 1, 1997,
submission of comments within the first 30 days is encouraged to ensure
their consideration. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information;
How to enhance the quality, utility, and clarity of the information
to be collected;
How to minimize the burden of complying with the proposed
collection of information, including the application of automated
collection techniques or other forms of information technology; and
Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
Additonal PRA 95 Information:
I. Background: In order to meet HIPAA's goal of improving access to
and portability of health care benefits,
[[Page 16921]]
the statute provides that, after the submission of evidence
establishing prior creditable coverage, a subsequent health insurance
provider would be limited in the extent to which it could use pre-
existing condition exclusions to limit coverage. This ICR covers the
submission of materials sufficient to establish prior creditable
coverage.
II. Current Actions: Under 29 CFR 2590.701-5 and 26 CFR 54.9801-5T
of the interim rule, a group health plan offering group health
insurance coverage is obligated to provide a written certificate of
information suitable for establishing the prior creditable coverage of
a participant or beneficiary. To the extent that a certification is not
available or inadequate to prove prior creditable coverage, paragraph
(c) provides other methods for establishing creditable coverage. During
the transition period for certification (29 CFR 2590.710(e) and 26 CFR
54.9806-1T(e)), plans have the option of providing notices regarding
participant's rights to certification rather than the certification
itself; plans then provide certificates only to those participants who
request them. 29 CFR 2590.701-5(a)(7) and 26 CFR 54.9801-5T(a)(7)
provides special rules for establishing prior coverage of defendants,
and 29 CFR 2590.701-5(b) and 26 CFR 54.9801-5T(b) provides guidance on
providing evidence of coverage to those plans that use the alternative
method of crediting coverage.
These regulations offer model certification and notice forms to be
used by group health plans and health insurance issuers, containing the
minimum information mandated by the statute. Based on past experience,
the staff believes that most of the materials required to be exchanged
under the certification procedure will be prepared by contract service
providers such as insurance companies and third-party administrators.
Type of Review: New
Agencies: U.S. Department of Labor, Pension and Welfare Benefits
Administration; U.S. Department of the Treasury, Internal Revenue
Service.
Title: Establishing Prior Creditable Coverage
Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions; Group Health Plans.
Frequency: On occasion
Burden:
----------------------------------------------------------------------------------------------------------------
Average time
Total Total per response Burden hours
Year respondents responses (range) (range) Cost (range)
(minutes)
----------------------------------------------------------------------------------------------------------------
1997............................ 2,600,000 51,799,410 3.23 502,080 $57,180,000
.............. .............. 6.12 950,710 84,590,000
1998............................ 2,600,000 44,431,970 5.04 672,120 64,480,000
.............. .............. 11.77 1,569,390 119,310,000
1999............................ 2,600,000 44,399,150 5.27 702,360 66,310,000
.............. .............. 12.01 1,599,630 121,140,000
-------------------------------------------------------------------------------
Totals.................... .............. .............. .............. .............. ..............
----------------------------------------------------------------------------------------------------------------
Start up costs: It is estimated that the 15,604 plans that will
perform these functions internally (rather than use a service provider)
will incur an average cost of $5,000 per plan to revise their automated
records systems to accommodate this information for a total cost of $78
million over 10 years beginning in 1997.
Estimated total cost:
Comments submitted in response to this notice will be summarized
and/or included in the request for Office of Management and Budget
approval of the information collection request; they will also become a
matter of public record.
2. Notice of Enrollment Rights
i. Department of Labor
The Department of Labor, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance consultation
program to provide the general public and federal agencies with an
opportunity to comment on proposed information collection requests
(ICR) in accordance with the Paperwork Reduction Act of 1995 (PRA 95)
(Pub. L. 104-13, 44 U.S.C. Chapter 35) and 5 CFR 1320.11. This program
helps to ensure that requested data can be provided in the desired
format, reporting burden (time and financial resources) is minimized,
collection instruments are clearly understood, and the impact of
collection requirements on respondents can be properly assessed.
Currently, the Pension and Welfare Benefits Administration is
soliciting comments concerning the proposed new collection of Notice of
Enrollment Rights.
Dates: Written comments must be submitted to the office listed in
the addressee section below on or before May 31, 1997. In light of the
request for OMB clearance by June 1, 1997, submission of comments
within the first 30 days is encouraged to ensure their consideration.
The Department of Labor is particularly interested in comments
which:
evaluate whether the proposed collection is necessary for
the proper performance of the functions of the agency, including
whether the information will have practical utility;
evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
enhance the quality, utility, and clarity of the
information to be collected; and
minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submissions of responses.
Addressee: Gerald B. Lindrew, Office of Policy and Research, U.S.
Department of Labor, Pension and Welfare Benefits Administration, 200
Constitution Avenue, Room N-5647, Washington, D.C. 20210. Telephone:
202-219-4782 (this is not a toll-free number). Fax: 202-219-4745.
ii. Department of the Treasury
The collection of information is in Section 54.9801-6T. This
information is required by the statute so that participants will be
informed about their rights under HIPAA and about the amount of
creditable coverage that they have accrued under a group health plan.
[[Page 16922]]
The likely respondents are business or other for-profit institutions,
non-profit institutions, small businesses or organizations, and Taft-
Hartly trusts. Responses to this collection of information are
mandatory.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Comments on the collection of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of the Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, T:FP, Washington, DC 20224.
Comments on the collection of information should be received by May 31,
1997. In light of the request for OMB clearance by June 1, 1997,
submission of comments within the first 30 days is encouraged to ensure
their consideration. Comments are specially requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information;
How to enhance the quality, utility, and clarity of the information
to be collected;
How to minimize the burden of complying with the proposed
collection of information, including the application of automated
collection techniques or other forms of information technology; and
Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
Additional PRA 95 Information:
I. Background: In order to improve participants' understanding of
their rights under an employer's welfare benefits plan, the statute
provides that, a participant be provided with a description of a plan's
special enrollment rules on or before the time when a participant is
offered the opportunity to enroll in a group health plan.
II. Current Actions: Under 29 CFR 2590.701-6 and 26 CFR 54.9801-6T
of the interim rule, a group health plan offering group health
insurance coverage is obligated to provide a description of the plans'
special enrollment rules. The special enrollment rules generally apply
in circumstances when the participant initially declined to enroll in
the plan, and subsequently would like to have coverage.
These regulations offer a model form to be used by group health
plans and health insurance issuers, containing the minimum information
mandated by the statute. Based on past experience, the staff believes
that most of the materials required to be supplied under this ICR will
be prepared by contract service providers such as insurance companies
and third-party administrators.
Type of Review: New.
Agencies: U.S. Department of Labor, Pension and Welfare Benefits
administration; U.S. Department of the Treasury, Internal Revenue
Service.
Title: Notice of Enrollment Rights.
Affected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions; Group Health Plans.
Frequency: On occasion.
Burden:
----------------------------------------------------------------------------------------------------------------
Total Average time per
Year respondents Total response Burden hours Cost
(000) responses (minutes)
----------------------------------------------------------------------------------------------------------------
1997......................... 2,600,000 499,080 .50.............. 750 100,000
1998......................... 2,600,000 7,622.010 .50.............. 11,430 1,460,000
1999......................... 2,000,000 8,959,380 .50.............. 13,440 1,720,000
----------------------------------------------------------------------------------
Totals................. .............. .............. ................. .............. ..............
----------------------------------------------------------------------------------------------------------------
3. Notice of Pre-Existing Condition Exclusion
i. Department of Labor
The Department of Labor, as part of its continuing effort to reduce
paperwork and respondent burden, conducts a preclearance consultation
program to provide the general public and federal agencies with an
opportunity to comment on proposed information collection requests
(ICR) in accordance with the Paperwork Reduction Act of 1995 (PRA 95)
(Pub. L. 104-13, 44 U.S.C. Chapter 35) and 5 CFR 1320.11. This program
helps to ensure that requested data can be provided in the desired
format, reporting burden (time and financial resources) is minimized,
collection instruments are clearly understood, and the impact of
collection requirements on respondents can be properly assessed.
Currently, the Pension and Welfare Benefits Administration is
soliciting comments concerning the proposed new collection of Notice of
Pre-Existing Condition Exclusion.
Dates: Written comments must be submitted to the office listed in
the addressee section below on or before May 31, 1997. In light of the
request for OMB clearance by June 1, 1997, submission of comments
within the first 30 days is encouraged to ensure their consideration.
The Department of Labor is particularly interested in comments
which:
evaluate whether the proposed collection is necessary for
the proper performance of the functions of the agency, including
whether the information will have practical utility;
evaluate the accuracy of the agency's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
enhance, the quality, utility, and clarity of the
information to be collected; and
minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submissions of responses.
Addressee: Gerald B. Lindrew, Office of Policy and Research, U.S.
Department of Labor, Pension and Welfare Benefits Administration, 200
Constitution Avenue, Room N-5647, Washington, D.C. 20210. Telephone:
202-219-4782 (this is not a toll-free number) Fax: 202-219-4745.
[[Page 16923]]
ii. Department of the Treasury
The collection of information is in Sections 54.9801-3T, 54.9801-
4T, and 54.9801-5T. This information is required by the statute so that
participants will be informed about their rights under HIPAA and about
the amount of creditable coverage that they have accrued under a group
health plan. The likely respondents are business or other for-profit
institutions, non-profit institutions, small businesses or
organizations, and Taft-Hartley trusts. Responses to this collection of
information are mandatory.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Comments on the collection of information should be sent to the
Office of Management and Budget, Attn: Desk Officer for the Department
of the Treasury, Officer of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, T:FP, Washington, DC 20224.
Comments on the collection of information should be received by May 31,
1997. In light of the request for OMB clearance by June 1, 1997,
submission of comments within the first 30 days in encouraged to ensure
their consideration. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information;
How to enhance the quality, utility, and clarity of the information
to be collected;
How to minimize the burden of complying with the proposed
collection of information, including the application of automated
collection techniques or other forms of information technology; and
Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
Additional PRA 95 Information:
I. Background: In order to meet HIPAA's goal of improving
portability of health care coverage, participants needs to understand
their rights to show prior creditable coverage when entering a group
health plan that contain pre-existing condition exclusion provisions.
In addition, participants entering plans that use the alternative
method of crediting coverage also need to be informed of the plan's
provisions. Therefore, the Department has determined that plans that
contain these provisions must disclose that fact to new participants,
as well as inform individual participants of the extent to which a pre-
existing condition exclusion applies to them.
II. Current Actions: 29 CFR 2590.701-3(c) and 26 CFR 54.9801-3T(c)
requires that a group health plan or health insurance issuer offering
group health insurance under the plan may not impose any pre-existing
condition exclusions on a participant unless the participant has been
notified in writing that the plan contains per-existing condition
exclusions, that a participant has the right to demonstrate any period
of prior creditable coverage, and that the plan or issuer will assist
the participant in obtaining a certificate of prior coverage from any
prior plan or issuer, if necessary. 29 CFR 2590.701-4(c)(4) and 26 CFR
54.9801-4T(c)(4) requires that plans that use the alternative method of
crediting coverage disclose their method at the time of enrollment in
the plan. No additional cost of preparing or distributing this
information has been included in this analysis because plans would only
pursue this option if it were, on net, less costly than the standard
method.
In addition, 29 CFR 2590.701-5(d)(2) and 26 CFR 54.9801-5T(d)(2)
requires that before a plan or issuer imposes a pre-existing condition
exclusion on a particular participant, it must first disclose that
determination in writing, including the basis for the decision, and an
explanation of any appeal procedure established by the plan or issuer.
Type of Review: New.
Agencies: U.S. Department of Labor, Pension and Welfare Benefits
Administration; U.S. Department of the Treasury, Internal Revenue
Service.
Title: Notice of Pre-Existing Exclusion Provisions.
Afffected Public: Individuals or households; Business or other for-
profit; Not-for-profit institutions; Group Health Plans.
Frequency: On occasion.
Burden:
----------------------------------------------------------------------------------------------------------------
Average time
Cite/reference Total Total per responses Burden hours Cost
respondents responses (minutes)
----------------------------------------------------------------------------------------------------------------
Notice at time of enrollment:
1997........................ 1,261,450 500,800 0.70 2,470 $180,000
1998........................ 1,261,450 7,626,880 0.54 16,300 1,700,000
1999........................ 1,261,450 8,959,700 0.50 13,750 1,730,000
Notice of pre-existing condition
causing lack of coverage:
1997........................ 1,261,450 57,900 2.27 1,800 100,000
1998........................ 1,261,450 862,830 0.84 6,160 410,000
1999........................ 1,261,450 1,008,810 0.52 1,830 210,000
-------------------------------------------------------------------------------
Totals.................... .............. .............. .............. .............. ..............
----------------------------------------------------------------------------------------------------------------
Estimated Total Burden Cost:
N. Paperwork Reduction Act--Department of Health and Human Services
Under the Paperwork Reduction Act of 1995, HHS is required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
[[Page 16924]]
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
We are, however, requesting an emergency review of this notice. In
compliance with the requirement of section 3506(c)(2)(A) of the
Paperwork Reduction Act of 1995, we have submitted to the Office of
Management and Budget (OMB) the following requirement for emergency
review. We are requesting an emergency review because the collection of
this information is needed before the expiration of the normal time
limits under OMB's regulations at 5 CFR, Part 1320, to ensure
compliance with section 111 of the HIPAA necessary to implement
congressional intent with respect to guaranteeing availability of
individual health insurance coverage to certain individuals with prior
group coverage. We cannot reasonably comply with the normal clearance
procedures because public harm is likely to result because eligible
individuals will not receive the health insurance protections under the
statute.
We are requesting that OMB provide a 30-day public comment period
from the date of the publication, with OMB review and approval by June
1, 1997, and a 180-day approval. During this 180-day period, we will
publish a separate Federal Register notice announcing the initiation of
an extensive 60-day agency review and public comment period on these
requirements. We will submit the requirements for OMB review and an
extension of this emergency approval.
Type of Information Request: New collection.
Title of Information Collection: Information Requirements
Referenced in HIPAA for Group Health Plans.
Form Number: HCFA-R-206.
Use: This regulation and related information collection
requirements will ensure that group health plans provide individuals
with documentation necessary to demonstrate prior creditable coverage,
and that group health plans notify individuals of their special
enrollment rights in the group health insurance market.
Frequency: On occasion.
Affected Public: State and local governments, Business or other for
profit, not-for-profit institutions, individuals or households, Federal
government.
Number of Respondents: 1,430.
Total Annual Responses: Due to the rolling effective dates in the
statute, the number of annual responses is estimated to be 32.5 million
in 1997, but will increase to 41 million in 1998 and 42.5 million in
1999.
Total Annual Hours Requested: 1.8 million to 3.6 million hours in
1997; 2.3 million to 5.8 million hours in 1998; and 2.6 million to 5.9
million hours in 1999.
Total Annual Costs: $36.8 million to $53.9 million in 1997; $42.4
million to $76.3 million in 1998; and $43.5 million to $77.3 million in
1999. 45 CFR Secs. 146.120, 146.122, 146.150, 146.152, 146.160, and
146.180 of this document contain information collection requirements.
45 CFR 146.120 Certificates and Disclosure of Previous Coverage
Certificates and Disclosure of Prior Coverage. This section sets
forth guidance regarding the certification and other disclosure of
information requirements relating to prior creditable coverage of an
individual. In general, the certificate must be provided in writing and
must include the following information: (1) The date any waiting or
affiliation period began, (2) the date coverage began, and (3) the date
coverage ended (or indicate if coverage is continuing). The regulations
also allow a plan or issuer in an appropriate case to simply state in
the certificate that the individual has at least 18 months of
creditable coverage that is not interrupted by a significant break and
indicate the date coverage ended. In general, individuals have the
right to receive a certificate automatically (an automatic certificate)
when they lose coverage under a plan and when they have a right to
elect COBRA continuation coverage.
We anticipate that approximately 1,400 issuers will be required to
produce 30 million certifications per year based on the model
certificate provided. Our estimate of issuers (1,400) includes
commercial insurers and HMOs, but does not include some types of
issuers, such as Preferred Provider Organizations (PPOs); however,
these types of issuers are small in number. The time estimate includes
the time required to gather the pertinent information, create a
certificate, and mail the certificate to the plan participant. This
time estimate is based on discussions with industry individuals. We
believe that, as a routine business practice, the issuers'
administrative staff have the necessary information readily available
to generate the required certificates. In addition, we have determined
that the majority of issuers have or will have the capability to
automatically computer generate and disseminate the necessary
certification when appropriate.
These estimates include the certificates required by issuers acting
as service providers on behalf of group health plans and state and
local government health plans. We anticipate that most, if not all,
state and local government health plans will contract with an issuer to
develop the certificate.
Estimates for Certifications
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Total
Year respondents responses Average time per response (range) Burden hours (range) Cost (range)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1997..................................... 1,400 32,698,845 3.32 min......................... 1,809,119 hrs................... $36,366,106
........... 6.34min 3,456,036 hrs.................... 53,434,628......................
1998..................................... 1,400 28,072,131 5.19 min......................... 2,242,866 hrs................... 40,928,939
........... ........... 12.23 min........................ 5,720,198 hrs................... 74,859,759
1999..................................... 1,400 28,055,984 5.37 min......................... 2,510,461 hrs................... 42,124,907
........... ........... 12.41 min........................ 5,804,408 hrs................... 75,760,119
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The costs above include the costs associated with issuers acting as service providers for group health plans. The costs are also included in the
Department of Labor's estimates.
Notice to all participants: Under this section, issuers are
required to notify all participants at the time of enrollment stating
the terms of the issuer's pre-existing condition exclusion provisions,
the participant's right to demonstrate creditable coverage, and that
the issuer will assist in securing a certificate if necessary.
[[Page 16925]]
We have estimated the burden associated with this information
collection requirement to be the time required for issuers to develop
standardized language outlining the existence and terms of any
preexisting condition exclusion under the plan and the rights of
individuals to demonstrate creditable coverage. In specific, we
anticipate that issuers will be required to develop approximately
660,000 notices in 1997; 5.6 million notices in 1998; and 6.2 million
notices in 1999. At 30 seconds for each notice, we estimate the total
hour burden to be 4,400 hours in 1997; 30,000 hours in 1998; and 34,000
hours in 1999. The respective costs will be $49,000 in 1997; $330,000
in 1998; and $377,000 in 1999. These estimates and subsequent estimates
are based on an hourly wage of $11 for issuers and $15 for State and
local government employees. These estimates include the notices
required by issuers on behalf of state and local government health
plans, since we anticipate that most, if not all state and local
government health plans will contract with an issuer to develop the
notice. The estimates have been disaggregated below:
----------------------------------------------------------------------------------------------------------------
State health Local health
Year Issuers plans plans Total notices
----------------------------------------------------------------------------------------------------------------
Total notices:
1997........................................ 320,000 129,826 214,880 664,706
1998........................................ 4,878,200 259,653 429,761 5,567,614
1999........................................ 5,734,300 259,653 429,761 6,189,714
Total burden hours:
1997........................................ 1,592 1,078 1,784 4,454
1998........................................ 24,293 2,155 3,567 30,015
1999........................................ 28,557 2,155 3,567 34,279
----------------------------------------------------------------------------------------------------------------
Notice to individual of period of preexisting condition exclusion.
Within a reasonable time following the receipt of the certificate,
information relating to the alternative method, or other evidence of
coverage, a plan or issuer is required to make a determination
regarding the length of any preexisting condition exclusion period that
applies to the individual and notify the individual of its
determination. Whether a determination and notification is made within
a reasonable period of time will depend upon the relevant facts and
circumstances including whether the application of the preexisting
condition exclusion period would prevent access to urgent medical
services. The individual need only be notified, however, if, after
considering the evidence, a preexisting condition exclusion period will
be imposed on the individual. The basis of the determination, including
the source and substance of any information on which the plan or issuer
relied, must be included in the notice. The plan's appeals procedures
and the opportunity of the individual to present additional evidence
must also be explained in the notification.
We estimate that issuers will be required to develop approximately
29,000 notices in 1997; 425,000 notices in 1998; and 498,000 notices in
1999. At 2 minutes for each notice, we estimate the total hour burden
to be 960 hours in 1997; 14,000 hours in 1998; and 16,600 hours in
1999. We estimate the respective costs associated with these burdens to
be $10,600 in 1997; $156,000 in 1998; and $183,000 in 1999. These
estimates include the notices required by issuers on behalf of state
and local government health plans, since we anticipate that most, if
not all state and local government health plans will contract with an
issuer to develop the notice. The estimates have been disaggregated
below:
----------------------------------------------------------------------------------------------------------------
State health Local health
Year Issuers plans plans Total notices
----------------------------------------------------------------------------------------------------------------
Total notices:
1997........................................ 27,650 588 766 29,004
1998........................................ 422,136 1,176 1,531 425,143
1999........................................ 496,182 1,176 1,531 498,889
Total burden hours:
1997........................................ 921 20 25 966
1998........................................ 14,057 40 51 14,148
1999........................................ 16,553 40 51 16,644
----------------------------------------------------------------------------------------------------------------
45 CFR 146.122 Special Enrollment Periods
This section in the regulation provides guidance regarding new
enrollment rights that employees and dependents have under HIPAA. A
health insurance issuer offering group health insurance coverage is
required to provide a description of the special enrollment rights to
anyone who declines coverage at the time of enrollment. The regulations
provide a model of such a description containing the minimum
information mandated by the statute.
The first burden associated with this requirement is the time
required for health insurance issuers and state and local government
health plans to incorporate the model notice into the plan's standard
policy information. We estimate the burden to be 2 hours annually per
issuer, for a total burden of 2,800 hours. The cost associated with
this hour burden is estimated to be $30,800 annually.
The second burden associated with this requirement is the time
required to disseminate the notice to new enrollees. We estimate that
issuers will be required to develop approximately 1 million notices in
1997; 5.3 million notices in 1998; and 5.9 million notices in 1999. At
30 seconds for each notice, we estimate the total hour burden to be
8,300 hours in 1997; 43,000 hours in 1998; and 48,000 hours in 1999. We
have estimated the costs associated with these hour burdens to be
$91,000 in 1997; $469,000 in 1998; and $527,000 in
[[Page 16926]]
1999. These estimates include the notices required by issuers on behalf
of state and local government health plans, since we anticipate that
most, if not all state and local government health plans will contract
with an issuer to develop the notice. The estimates have been
disaggregated below:
----------------------------------------------------------------------------------------------------------------
State health Local health
Year Issuers plans plans Total notices
----------------------------------------------------------------------------------------------------------------
Total notices:
1997........................................ 245,508 287,938 500,750 1,034,196
1998........................................ 3,750,024 575,875 1,001,500 5,327,399
1999........................................ 4,407,828 575,875 1,001,500 5,985,203
Total burden hours:
1997........................................ 1,964 2,304 4,006 8,273
1998........................................ 30,000 4,607 8,012 42,619
1999........................................ 35,263 4,607 8,012 47,881
----------------------------------------------------------------------------------------------------------------
45 CFR 146.150 Guaranteed Availability of Coverage for Employers in
the PHS Act Group Market Provisions
This section allows a health insurance issuer to deny health
insurance coverage in the small group market if the issuer has
demonstrated to the applicable State authority (if required by the
State authority) that it does not have the financial reserves necessary
to underwrite additional coverage and that it is applying this denial
uniformly to all employers in the small group market in the State
consistent with applicable State law and without regard to the claims
experience of those employers and their employees (and their
dependents) or any health status-related factor relating to those
employees and dependents. Thus, issuers are only required to report to
the applicable State authority if they are discontinuing coverage in
the small group market.
This requirement exists in the absence of this regulation because
under current insurance practices, State insurance departments oversee
discontinuance of insurance products in their State as a normal
business practice. Therefore, these information collection requirements
are exempt from the PRA under 5 CFR 1320.3(b)(2) and 5 CFR
1320.3(b)(3). However, under HIPAA, States must review policies during
their oversight process to make sure there is a guaranteed availability
clause in each policy. For the 37 States that currently require
guaranteed availability, it is our understanding that this is normal
business practice. For the other 18 States, however, we see this State
burden to be about 10 minutes per policy, since States already review
policies for other requirements and this process does not prescribe a
timetable for reviewing the policies. We see this as a total burden of
10,850 hours. We have estimated the cost associated with this hour
burden to be $163,000. If the State identifies a violation and a State
has to take some action, we believe that each State will be required to
initiate fewer than 10 administrative actions on an annual basis
against specific individuals or entities who failed to implement the
Federal guarantee availability requirements.
45 CFR 146.152 Guaranteed Renewability of Coverage for Employers in
the PHS Act Group Market Provisions
In this section issuers are only required to report if they are
discontinuing a particular type of coverage or discontinuing all
coverage. This requirement exists in the absence of this regulation
because under current insurance practices, State insurance departments
oversee discontinuance of insurance products in their State as a normal
business practice. Therefore, these information collection requirements
are exempt from the PRA under 5 CFR 1320.3(b)(2) and 5 CFR
1320.3(b)(3). However, under HIPAA, States must review policies during
their oversight process to make sure there is a guaranteed availability
clause in each policy. For the 43 States that currently require
guaranteed renewability, it is our understanding that this is normal
business practice. For the other 12 States, however, we see this State
burden to be about 10 minutes per policy, since States already review
policies for other requirements and this process does not prescribe a
timetable for reviewing the policies. We see this as a total burden of
6,700 hours. We have estimated the cost associated with this hour
burden to be $100,500. If the State identifies a violation and a State
has to take some action, we believe that each State will be required to
initiate fewer than 10 administrative actions on an annual basis
against specific individuals or entities who failed to implement the
Federal guarantee renewability requirements.
45 CFR 146.160 Disclosure of Information by Issuers to Employers
Seeking Coverage in the Small Group Market in the PHS Act Provisions
This section requires issuers to disclose information to employers
seeking coverage in the small group market. This section requires
information to be provided by a health insurance issuer offering any
health insurance coverage to a small employer. This information
includes the issuer's right to change premium rates and the factors
that may affect changes in premium rates, renewability of coverage, any
preexisting condition exclusion, any affiliation periods applied by
HMOs, the geographic areas served by HMOs, and the benefits and
premiums available under all health insurance coverage for which the
employer is qualified. The issuer is exempted from disclosing
information that is proprietary or trade secret information under
applicable law.
The information described in this section must be language that is
understandable by the average small employer and sufficient to
reasonably inform small employers of their rights and obligations under
the health insurance coverage. This requirement is satisfied if the
issuer provides an outline of coverage, the minimum contribution and
group participation rules that apply to any particular type of
coverage, and any other information required by the State. An outline
of coverage is defined as a general description of benefits and
premiums. This would include an outline of coverage similar to the
manner in which Medigap policies are presented, allowing the employer
to easily compare one policy form to another to determine what is
covered and how much the coverage will cost.
We have estimated the total burden associated with this activity to
be 2,400 hours. We anticipate that 1,200 issuers will be required to
provide disclosure to small employers on an annual basis. We
[[Page 16927]]
estimate this time to be approximately 2 hours for each issuer to
develop and update the standard information related to the general
description of benefits and premiums on an annual basis and include
this information in their policy information. We have estimated the
cost associated with this hour burden to be $36,000.
45 CFR 146.180 Exclusion of Certain Plans From the PHS Act Group
Market Requirements
Section 145.180(b) includes rules pertaining to nonfederal
governmental plans, which are permitted under HIPAA to elect to be
exempted from some or all of HIPAA's requirements in the PHS Act. The
regulation establishes the form and manner of the election. In
particular, a nonfederal governmental plan making this election is
required to notify plan participants, at the time of enrollment and on
an annual basis, of the fact and consequences of the election. The
burden imposed by this is the requirement for plans to disseminate
standard notification language describing the plans' election and the
consequences of this election. We anticipate that between 3,500 and
5,000 nonfederal governmental plans will make this election and will
therefore be required to disseminate notifications to their
participants on an annual basis. Since this is standard language that
will be incorporated into plans' existing policy documents, we see the
burden as approximately 2 hours per plan to develop and update this
standardized disclosure statement on an annual basis. Thus, we estimate
the total burden for this activity to range from 7,000 to 10,000 hours.
We estimate the cost associated with these hourly burdens to range from
$77,000 to $110,000 per year.
The above estimate does not include the cost of disseminating the
notices to all plan participants on an annual basis and to new
enrollees at the time of enrollment. Although we do not have an
accurate estimate of the number of nonfederal governmental plans will
choose to opt out of these provisions, we have provided for a range of
50 to 100 percent. Using these ranges, we estimated 400,000 to 800,000
of these notices would need to be produced in 1997 and 800,000 to 1.6
million in 1998 and 1999. At 30 seconds per notice, we estimate the
total burden hours to range from 3,400 to 6,800 in 1997; and 6,800 to
13,600 in 1998 and 1999. We have estimated the costs associated with
these hour burdens to range from $37,400 to $74,800 in 1997; and from
$74,800 to $149,600 in 1998 and 1999.
We have submitted a copy of this rule to OMB for its review of
these information collections. A notice will be published in the
Federal Register when approval is obtained. Interested persons are
invited to send comments regarding this burden or any other aspect of
these collections of information. If you comment on these information
collection and record keeping requirements, please mail copies directly
to the following addresses:
Health Care Financing Administration, Office of Financial and Human
Resources, Management Planning and Analysis Staff, Room C2-26-17, 7500
Security Boulevard, Baltimore, MD 21244-1850. Attn: John Burke
Office of Information and Regulatory Affairs, Office of Management and
Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Allison Herron Eydt, HCFA Desk Officer.
Statutory Authorities
The Department of Labor interim final rule is adopted pursuant to
the authority contained in Section 707 of ERISA (Pub. L. 93-406, 88
Stat. 894; 29 U.S.C. 1135) as amended by HIPAA, (Pub. L. 104-91; 101
Stat. 1936; 29 U.S.C. 1181).
The Department of Health and Human Services interim final rule is
adopted pursuant to the authority contained in Sections 2701, 2702,
2711, 2712, 2713, and 2792 of the PHS Act, as established by HIPAA,
(Pub. L. 104-191, 42 U.S.C. 300gg-1 through 300gg-13, and 300gg-92).
The Department of the Treasury temporary rule is adopted pursuant
to the authority contained in Section.
List of Subjects
26 CFR Part 54
Excise taxes, Health insurance, Pensions, Reporting and
recordkeeping requirements.
29 CFR Part 2590
Employee benefit plans, Employee Retirement Income Security Act,
Health care, Health insurance, Reporting and recordkeeping
requirements.
45 CFR Parts 144 and 146
Health care, Health insurance, Reporting and recordkeeping
requirements, State regulation of health insurance.
Amendments to the Regulations
Internal Revenue Service
26 CFR Chapter 1
Accordingly, 26 CFR part 54 is amended as follows:
PART 54--PENSION EXCISE TAXES
Paragraph 1. The authority citation for part 54 is amended by
adding entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.9801-1T also issued under 26 U.S.C. 9806.
Section 54.9801-2T also issued under 26 U.S.C. 9806.
Section 54.9801-3T also issued under 26 U.S.C. 9806.
Section 54.9801-4T also issued under 26 U.S.C. 9806.
Section 54.9801-5T also issued under 26 U.S.C. 9801(c)(4),
9801(e)(3), and 9806
Section 54.9801-6T also issued under 26 U.S.C. 9806.
Section 54.9802-1T also issued under 26 U.S.C. 9806.
Section 54.9804-1T also issued under 26 U.S.C. 9806.
Section 54.9806-1T also issued under 26 U.S.C. 9806.
Par. 2. Sections 54.9801-1T, 54.9801-2T, 54.9801-3T, 54.9801-4T,
54.9801-5T, 54.9801-6T, 54.9802-1T, 54.9804-1T, and 54.9806-1T are
added to read as follows:
Sec. 54.9801-1T Basis and scope (temporary).
(a) Statutory basis. Sections 54.9801-1T through 54.9801-6T,
54.9802-1T, 54.9804-1T, and 54.9806-1T (portability sections) implement
Chapter 100 of Subtitle K of the Internal Revenue Code of 1986.
(b) Scope. A group health plan may provide greater rights to
participants and beneficiaries than those set forth in these
portability sections. These portability sections set forth minimum
requirements for group health plans concerning:
(1) Limitations on a preexisting condition exclusion period.
(2) Certificates and disclosure of previous coverage.
(3) Rules relating to creditable coverage.
(4) Special enrollment periods.
(c) Similar Requirements Under the Public Health Service Act and
Employee Retirement Income Security Act. Sections 2701, 2702, 2721, and
2791 of the Public Health Service Act and sections 701, 702, 703, 705,
and 706 of the Employee Retirement Income Security Act of 1974 impose
requirements similar to those imposed under Chapter 100 of Subtitle K
of the Code with respect to health insurance issuers offering group
health insurance coverage. See 45 CFR parts 144, 146 and 148 and 29 CFR
part 2590. See also Part B of Title XXVII of the Public Health Service
Act and 45 CFR part 148 for other rules applicable to health insurance
offered in the individual market (defined in Sec. 54.9801-2T).
[[Page 16928]]
Sec. 54.9801-2T Definitions (temporary).
Unless otherwise provided, the definitions in this section govern
in applying the provisions of Secs. 54.9801-1T through 54.9801-6T,
54.9802-1T, 54.9804-1T, and 54.9806-1T.
Affiliation period means a period of time that must expire before
health insurance coverage provided by an HMO becomes effective, and
during which the HMO is not required to provide benefits.
COBRA definitions:
(1) COBRA means Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(2) COBRA continuation coverage means coverage, under a group
health plan, that satisfies an applicable COBRA continuation provision.
(3) COBRA continuation provision means sections 601-608 of the
ERISA, section 4980B of the Code (other than paragraph (f)(1) of such
section 4980B insofar as it relates to pediatric vaccines), and Title
XXII of the PHSA.
(4) Exhaustion of COBRA continuation coverage means that an
individual's COBRA continuation coverage ceases for any reason other
than either failure of the individual to pay premiums on a timely
basis, or for cause (such as making a fraudulent claim or an
intentional misrepresentation of a material fact in connection with the
plan). An individual is considered to have exhausted COBRA continuation
coverage if such coverage ceases--
(i) Due to the failure of the employer or other responsible entity
to remit premiums on a timely basis; or
(ii) When the individual no longer resides, lives, or works in a
service area of an HMO or similar program (whether or not within the
choice of the individual) and there is no other COBRA continuation
coverage available to the individual.
Condition means a medical condition.
Creditable coverage means creditable coverage within the meaning of
Sec. 54.9801-4T(a).
Employee Retirement Income Security Act of 1974 (ERISA) means the
Employee Retirement Income Security Act of 1974, as amended (29 U.S.C.
1001 et seq.).
Enroll means to become covered for benefits under a group health
plan (i.e., when coverage becomes effective), without regard to when
the individual may have completed or filed any forms that are required
in order to enroll in the plan. For this purpose, an individual who has
health insurance coverage under a group health plan is enrolled in the
plan regardless of whether the individual elects coverage, the
individual is a dependent who becomes covered as a result of an
election by a participant, or the individual becomes covered without an
election.
Enrollment date definitions (enrollment date and first day of
coverage) are set forth in Sec. 54.9801-3T(a)(2) (i) and (ii).
Excepted benefits means the benefits described as excepted in
Sec. 54.9804-1T(b).
Genetic information means information about genes, gene products,
and inherited characteristics that may derive from the individual or a
family member. This includes information regarding carrier status and
information derived from laboratory tests that identify mutations in
specific genes or chromosomes, physical medical examinations, family
histories, and direct analysis of genes or chromosomes.
Group health insurance coverage means health insurance coverage
offered in connection with a group health plan.
Group health plan means a plan (including a self-insured plan) of,
or contributed to by, an employer (including a self-employed person) or
employee organization to provide health care (directly or otherwise) to
the employees, former employees, the employer, others associated or
formerly associated with the employer in a business relationship, or
their families.
Group market means the market for health insurance coverage offered
in connection with a group health plan. (However, certain very small
plans may be treated as being in the individual market, rather than the
group market; see the definition of individual market in this section.)
Health insurance coverage means benefits consisting of medical care
(provided directly, through insurance or reimbursement, or otherwise)
under any hospital or medical service policy or certificate, hospital
or medical service plan contract, or HMO contract offered by a health
insurance issuer. However, benefits described in Sec. 54.9804-1T(b)(2)
are not treated as benefits consisting of medical care.
Health insurance issuer or issuer means an insurance company,
insurance service, or insurance organization (including an HMO) that is
required to be licensed to engage in the business of insurance in a
State and that is subject to State law that regulates insurance (within
the meaning of section 514(b)(2) of ERISA). Such term does not include
a group health plan.
Health maintenance organization or HMO means--
(1) A federally qualified health maintenance organization (as
defined in section 1301(a) of the PHSA);
(2) An organization recognized under State law as a health
maintenance organization; or
(3) A similar organization regulated under State law for solvency
in the same manner and to the same extent as such a health maintenance
organization.
Individual health insurance coverage means health insurance
coverage offered to individuals in the individual market, but does not
include short-term, limited duration insurance. For this purpose,
short-term, limited duration insurance means health insurance coverage
provided pursuant to a contract with an issuer that has an expiration
date specified in the contract (taking into account any extensions that
may be elected by the policyholder without the issuer's consent) that
is within 12 months of the date such contract becomes effective.
Individual health insurance coverage can include dependent coverage.
Individual market means the market for health insurance coverage
offered to individuals other than in connection with a group health
plan. Unless a State elects otherwise in accordance with section
2791(e)(1)(B)(ii) of the PHSA, such term also includes coverage offered
in connection with a group health plan that has fewer than two
participants as current employees on the first day of the plan year.
Issuer means a health insurance issuer.
Late enrollment definitions (late enrollee and late enrollment) are
set forth in Sec. 54.9801-3T(a)(2) (iii) and (iv).
Medical care has the meaning given such term by section 213(d) of
the Internal Revenue Code, determined without regard to section
213(d)(1)(C) and so much of section 213(d)(1)(D) as relates to
qualified long-term care insurance.
Medical condition on condition means any condition, whether
physical or mental, including, but not limited to, any condition
resulting from illness, injury (whether or not the injury is
accidental), pregnancy, or congenital malformation. However, genetic
information is not a condition.
Placement, or being placed, for adoption means the assumption and
retention of a legal obligation for total or partial support of a child
by a person with whom the child has been placed in anticipation of the
child's adoption. The child's placement for adoption with such person
terminates upon the termination of such legal obligation.
Plan year means the year that is designated as the plan year in the
plan
[[Page 16929]]
document of a group health plan, except that if the plan document does
not designate a plan year or if there is no plan document, the plan
year is--
(1) The deductible/limit year used under the plan;
(2) If the plan does not impose deductibles or limits on a yearly
basis, then the plan year is the policy year;
(3) If the plan does not impose deductibles or limits on a yearly
basis, and either the plan is not insured or the insurance policy is
not renewed on an annual basis, then the plan year is the employer's
taxable year; or
(4) In any other case, the plan year is the calendar year.
Preexisting condition exclusion means a limitation or exclusion of
benefits relating to a condition based on the fact that the condition
was present before the first day of coverage, whether or not any
medical advice, diagnosis, care, or treatment was recommended or
received before that day. A preexisting condition exclusion includes
any exclusion applicable to an individual as a result of information
that is obtained relating to an individual's health status before the
individual's first day of coverage, such as a condition identified as a
result of a pre-enrollment questionnaire or physical examination given
to the individual, or review of medical records relating to the
preenrollment period.
Public health plan means public health plan within the meaning of
Sec. 54.9801-4T(a)(1)(ix).
Public Health Service Act (PHSA) means the Public Health Service
Act (42 U.S.C. 201, et seq.).
Significant break in coverage means a significant break in coverage
within the meaning of Sec. 54.9801-4T(b)(2)(iii).
Special enrollment date means a special enrollment date within the
meaning of Sec. 54.9801-6T(d).
State health benefits risk pool means a State health benefits risk
pool within the meaning of Sec. 54.9801-4T(a)(1)(vii).
Waiting period means the period that must pass before an employee
or dependent is eligible to enroll under the terms of a group health
plan. If an employee or dependent enrolls as a late enrollee or on a
special enrollment date, any period before such late or special
enrollment is not a waiting period. If an individual seeks and obtains
coverage in the individual market, any period after the date the
individual files a substantially complete application for coverage and
before the first day of coverage is a waiting period.
Sec. 54.9801-3T Limitations on preexisting condition exclusion period
(temporary).
(a) Preexisting condition exclusion--(1) In general. Subject to
paragraph (b) of this section, a group health plan may impose, with
respect to a participant or beneficiary, a preexisting condition
exclusion only if the requirements of this paragraph (a) are satisfied.
(See PHSA section 2701 and ERISA section 701 under which this
prohibition is also imposed on a health insurance issuer offering group
health insurance coverage.)
(i) 6-month look-back rule. A preexisting condition exclusion must
relate to a condition (whether physical or mental), regardless of the
cause of the condition, for which medical advice, diagnosis, care, or
treatment was recommended or received within the 6-month period ending
on the enrollment date.
(A) For purposes of this paragraph (a)(1)(i), medical advice,
diagnosis, care, or treatment is taken into account only if it is
recommended by, or received from, an individual licensed or similarly
authorized to provide such services under State law and operating
within the scope of practice authorized by State law.
(B) For purposes of this paragraph (a)(1)(i), the 6-month period
ending on the enrollment date begins on the 6-month anniversary date
preceding the enrollment date. For example, for an enrollment date of
August 1, 1998, the 6-month period preceding the enrollment date is the
period commencing on February 1, 1998 and continuing through July 31,
1998. As another example, for an enrollment date of August 30, 1998,
the 6-month period preceding the enrollment date is the period
commencing on February 28, 1998 and continuing through August 29, 1998.
(C) The rules of this paragraph (a)(1)(i) are illustrated by the
following examples:
Example 1. (i) Individual A is treated for a medical condition 7
months before the enrollment date in Employer R's group health plan.
As part of such treatment, A's physician recommends that a follow-up
examination be given 2 months later. Despite this recommendation, A
does not receive a follow-up examination and no other medical
advice, diagnosis, care, or treatment for that condition is
recommended to A or received by A during the 6-month period ending
on A's enrollment date in Employer R's plan.
(ii) In this Example 1, Employer R's plan may not impose a
preexisting condition exclusion period with respect to the condition
for which A received treatment 7 months prior to the enrollment
date.
Example 2. (i) Same facts as Example 1 except that Employer R's
plan learns of the condition and attaches a rider to A's policy
excluding coverage for the condition. Three months after enrollment,
A's condition recurs, and Employer R's plan denies payment under the
rider.
(ii) In this Example 2, the rider is a preexisting condition
exclusion and Employer R's plan may not impose a preexisting
condition exclusion with respect to the condition for which A
received treatment 7 months prior to the enrollment date.
Example 3. (i) Individual B has asthma and is treated for that
condition several times during the 6-month period before B's
enrollment date in Employer S's plan. The plan imposes a 12-month
preexisting condition exclusion. B has no prior creditable coverage
to reduce the exclusion period. Three months after the enrollment
date, B begins coverage under Employer S's plan. Two months later, B
is hospitalized for asthma.
(ii) In this Example 3, Employer S's plan may exclude payment
for the hospital stay and the physician services associated with
this illness because the care is related to a medical condition for
which treatment was received by B during the 6-month period before
the enrollment date.
Example 4. (i) Individual D, who is subject to a preexisting
condition exclusion imposed by Employer U's plan, has diabetes, as
well as a foot condition caused by poor circulation and retinal
degeneration (both of which are conditions that may be directly
attributed to diabetes). After enrolling in the plan, D stumbles and
breaks a leg.
(ii) In this Example 4, the leg fracture is not a condition
related to D's diabetes, even though poor circulation in D's
extremities and poor vision may have contributed towards the
accident. However, any additional medical services that may be
needed because of D's preexisting diabetic condition that would not
be needed by another patient with a broken leg who does not have
diabetes may be subject to the preexisting condition exclusion
imposed under Employer U's plan.
(ii) Maximum length of preexisting condition exclusion (the look-
forward rule). A preexisting condition exclusion is not permitted to
extend for more than 12 months (18 months in the case of a late
enrollee) after the enrollment date. For purposes of this paragraph
(a)(1)(ii), the 12-month and 18-month periods after the enrollment date
are determined by reference to the anniversary of the enrollment date.
For example, for an enrollment date of August 1, 1998, the 12-month
period after the enrollment date is the period commencing on August 1,
1998 and continuing through July 31, 1999.
(iii) Reducing a preexisting condition exclusion period by
creditable coverage. The period of any preexisting condition exclusion
that would otherwise apply to an individual under a group health plan
is reduced by the number of days of creditable coverage the individual
has as of the enrollment date, as counted under Sec. 54.9801-4T. For
purposes of Sec. 54.9801-1T through Sec. 54.9801-6T, the phrase ``days
of creditable coverage'' has the same meaning as the phrase
[[Page 16930]]
``aggregate of the periods of creditable coverage'' as such term is
used in section 9801(a)(3) of the Internal Revenue Code.
(iv) Other standards. See Sec. 54.9802-1T for other standards that
may apply with respect to certain benefit limitations or restrictions
under a group health plan.
(2) Enrollment definitions--(i) Enrollment date means the first day
of coverage or, if there is a waiting period, the first day of the
waiting period.
(ii)(A) First day of coverage means, in the case of an individual
covered for benefits under a group health plan in the group market, the
first day of coverage under the plan and, in the case of an individual
covered by health insurance coverage in the individual market, the
first day of coverage under the policy.
(B) The following example illustrates the rule of paragraph
(a)(2)(ii)(A) of this section:
Example. (i) Employer V's group health plan provides for
coverage to begin on the first day of the first payroll period
following the date an employee is hired and completes the applicable
enrollment forms, or on any subsequent January 1 after completion of
the applicable enrollment forms. Employer V's plan imposes a
preexisting condition exclusion for 12 months (reduced by the
individual's creditable coverage) following an individual's
enrollment date. Employee E is hired by Employer V on October 13,
1998 and then on October 14, 1998 completes and files all the forms
necessary to enroll in the plan. E's coverage under the plan becomes
effective on October 25, 1998 (which is the beginning of the first
payroll period after E's date of hire).
(ii) In this Example, E's enrollment date is October 13, 1998
(which is the first day of the waiting period for E's enrollment and
is also E's date of hire). Accordingly, with respect to E, the 6-
month period in paragraph (a)(1)(i) would be the period from April
13, 1998 through October 12, 1998, the maximum permissible period
during which Employer V's plan could apply a preexisting condition
exclusion under paragraph (a)(1)(ii) would be the period from
October 13, 1998 through October 12, 1999, and this period would be
reduced under paragraph (a)(1)(iii) by E's days of creditable
coverage as of October 13, 1998.
(iii) Late enrollee means an individual whose enrollment in a plan
is a late enrollment.
(iv) (A) Late enrollment means enrollment under a group health plan
other than on--
(1) The earliest date on which coverage can become effective under
the terms of the plan; or
(2) A special enrollment date for the individual.
(B) If an individual ceases to be eligible for coverage under the
plan by terminating employment, and then subsequently becomes eligible
for coverage under the plan by resuming employment, only eligibility
during the individual's most recent period of employment is taken into
account in determining whether the individual is a late enrollee under
the plan with respect to the most recent period of coverage. Similar
rules apply if an individual again becomes eligible for coverage
following a suspension of coverage that applied generally under the
plan.
(v) Examples. The rules of this paragraph (a)(2) are illustrated by
the following examples:
Example 1. (i) Employee F first becomes eligible to be covered
by Employer W's group health plan on January 1, 1999, but elects not
to enroll in the plan until April 1, 1999. April 1, 1999 is not a
special enrollment date for F.
(ii) In this Example 1, F would be a late enrollee with respect
to F's coverage that became effective under the plan on April 1,
1999.
Example 2. (i) Same as Example 1, except that F does not enroll
in the plan on April 1, 1999 and terminates employment with Employer
W on July 1, 1999, without having had any health insurance coverage
under the plan. F is rehired by Employer W on January 1, 2000 and is
eligible for and elects coverage under Employer W's plan effective
on January 1, 2000.
(ii) In this Example 2, F would not be a late enrollee with
respect to F's coverage that became effective on January 1, 2000.
(b) Exceptions pertaining to preexisting condition exclusions--(1)
Newborns--
(i) In general. Subject to paragraph (b)(3) of this section, a
group health plan may not impose any preexisting condition exclusion
with regard to a child who, as of the last day of the 30-day period
beginning with the date of birth, is covered under any creditable
coverage. Accordingly, if a newborn is enrolled in a group health plan
(or other creditable coverage) within 30 days after birth and
subsequently enrolls in another group health plan without a significant
break in coverage, the other plan may not impose any preexisting
condition exclusion with regard to the child.
(ii) Example. The rule of this paragraph (b)(1) is illustrated by
the following example:
Example. (i) Seven months after enrollment in Employer W's group
health plan, Individual E has a child born with a birth defect.
Because the child is enrolled in Employer W's plan with in 30 days
of birth, no preexisting condition exclusion may be imposed with
respect to the child under Employer W's plan. Three months after the
child's birth, E commences employment with Employer X and enrolls
with the child in Employer X's plan 45 days after leaving Employer
W's plan. Employer X's plan imposes a 12-month exclusion for any
preexisting condition.
(ii) In this Example, Employer X's plan may not impose any
preexisting condition exclusion with respect to E's child because
the child was covered within 30 days of birth and had no significant
break in coverage. This result applies regardless of whether E's
child is included in the certificate of creditable coverage provided
to E by Employer W indicating 300 days of dependent coverage or
receives a separate certificate indicating 90 days of coverage.
Employer X's plan may impose a preexisting condition exclusion with
respect to E for up to 2 months for any preexisting condition of E
for which medical advice, diagnosis, care, or treatment was
recommended or received by E within the 6-month period ending on E's
enrollment date in Employer X's plan.
(2) Adopted children. Subject to paragraph (b)(3) of this section,
a group health plan may not impose any preexisting condition exclusion
in the case of a child who is adopted or placed for adoption before
attaining 18 years of age and who, as of the last day of the 30-day
period beginning on the date of the adoption or placement for adoption,
is covered under creditable coverage. This rule does not apply to
coverage before the date of such adoption or placement for adoption.
(3) Break in coverage. Paragraphs (b)(1) and (2) of this section no
longer apply to a child after a significant break in coverage.
(4) Pregnancy. A group health plan may not impose a preexisting
condition exclusion relating to pregnancy as a preexisting condition.
(5) Special enrollment dates. For special enrollment dates relating
to new dependents, see Sec. 54.9801-6T(b).
(c) Notice of plan's preexisting condition exclusion. A group
health plan may not impose a preexisting condition exclusion with
respect to a participant or dependent of the participant before
notifying the participant, in writing, of the existence and terms of
any preexisting condition exclusion under the plan and of the rights of
individuals to demonstrate creditable coverage (and any applicable
waiting periods) as required by Sec. 54.9801-5T. The description of the
rights of individuals to demonstrate creditable coverage includes a
description of the right of the individual to request a certificate
from a prior plan or issuer, if necessary, and a statement that the
current plan or issuer will assist in obtaining a certificate from any
prior plan or issuer, if necessary.
Sec. 54.9801-4T Rules relating to creditable coverage (temporary).
(a) General rules--(1) Creditable coverage. For purposes of this
section,
[[Page 16931]]
except as provided in paragraph (a)(2) of this section, the term
creditable coverage means coverage of an individual under any of the
following:
(i) A group health plan as defined in Sec. 54.9801-2T.
(ii) Health insurance coverage as defined in Sec. 54.9801-2T
(whether or not the entity offering the coverage is subject to chapter
100 of Subtitle K, and without regard to whether the coverage is
offered in the group market, the individual market, or otherwise).
(iii) Part A or B of Title XVIII of the Social Security Act
(Medicare).
(iv) Title XIX of the Social Security Act (Medicaid), other than
coverage consisting solely of benefits under section 1928 of the Social
Security Act (the program for distribution of pediatric vaccines).
(v) Title 10 U.S.C. Chapter 55 (medical and dental care for members
and certain former members of the uniformed services, and for their
dependents; for purposes of Title 10 U.S.C. Chapter 55, uniformed
services means the armed forces and the Commissioned Corps of the
National Oceanic and Atmospheric Administration and of the Public
Health Service).
(vi) A medical care program of the Indian Health Service or of a
tribal organization.
(vii) A State health benefits risk pool. For purposes of this
section, a State health benefits risk pool means--
(A) An organization qualifying under section 501(c)(26);
(B) A qualified high risk pool described in section 2744(c)(2) of
the PHSA; or
(C) Any other arrangement sponsored by a State, the membership
composition of which is specified by the State and which is established
and maintained primarily to provide health insurance coverage for
individuals who are residents of such State and who, by reason of the
existence or history of a medical condition--
(1) Are unable to acquire medical care coverage for such condition
through insurance or from an HMO; or
(2) Are able to acquire such coverage only at a rate which is
substantially in excess of the rate for such coverage through the
membership organization.
(viii) A health plan offered under Title 5 U.S.C. Chapter 89 (the
Federal Employees Health Benefits Program).
(ix) A public health plan. For purposes of this section, a public
health plan means any plan established or maintained by a State,
county, or other political subdivision of a State that provides health
insurance coverage to individuals who are enrolled in the plan.
(x) A health benefit plan under section 5(e) of the Peace Corps Act
(22 U.S.C. 2504(e)).
(2) Excluded coverage. Creditable coverage does not include
coverage consisting solely of coverage of expected benefits (described
in Sec. 54.9804-1T).
(3) Methods of counting creditable coverage. For purposes of
reducing any preexisting condition exclusion period, as provided under
Sec. 54.9801-3T(a)(1)(iii), a group health plan determines the amount
of an individual's creditable coverage by using the standard method
described in paragraph (b) of this section, except that the plan may
use the alternative method under paragraph (c) of this section with
respect to any or all of the categories of benefits described under
paragraph (c)(3) of this section or may provide that a health insurance
issuer offering health insurance coverage under the plan may use the
alternative method of counting creditable coverage.
(b) Standard method--(1) Specific benefits not considered. Under
the standard method, a group health plan determines the amount of
creditable coverage without regard to the specific benefits included in
the coverage.
(2) Counting creditable coverage--(i) Based on days. For purposes
of reducing the preexisting condition exclusion period, a group health
plan determines the amount of creditable coverage by counting all the
days that the individual has under one or more types of creditable
coverage. Accordingly, if on a particular day, an individual has
creditable coverage from more than one source, all the creditable
coverage on that day is counted as one day. Further, any days in a
waiting period for a plan or policy are not creditable coverage under
the plan or policy.
(ii) Days not counted before significant break in coverage. Days of
creditable coverage that occur before a significant break in coverage
are not required to be counted.
(iii) Definition of significant break in coverage. A significant
break in coverage means a period of 63 consecutive days during all of
which the individual does not have any creditable coverage, except that
neither a waiting period nor an affiliation period is taken into
account in determining a significant break in coverage. (See section
731(b)(2)(iii) of ERISA and section 2723(b)(2)(iii) of the PHSA which
exclude from preemption State insurance laws that require a break of
more than 63 days before an individual has a significant break in
coverage for purposes of State law.)
(iv) Examples. The following examples illustrate how creditable
coverage is counted in reducing preexisting condition exclusion periods
under this paragraph (b)(2):
Example 1. (i) Individual A works for Employer P and has
creditable coverage under Employer P's plan for 18 months before A's
employment terminates. A is hired by Employer Q, and enrolls in
Employer Q's group health plan, 64 days after the last date of
coverage under Employer P's plan. Employer Q's plan has a 12-month
preexisting condition exclusion period.
(ii) In this Example 1, because A had a break in coverage of 63
days, Employer Q's plan may disregard A's prior coverage and A may
be subject to a 12-month preexisting condition exclusions period.
Example 2. (i) Same facts as Example 1, except that A is hired
by Employer Q, and enrolls in Employer Q's plan, on the 63rd day
after the last date of coverage under Employer P's plan.
(ii) In this Example 2, A has a break in coverage of 62 days.
Because A's break in coverage is not a significant break in
coverage, Employer Q's plan must count A's prior creditable coverage
for purposes of reducing the plan's preexisting condition exclusion
as it applies to A.
Example 3. (i) Same facts as Example 1, except that Employer Q's
plan provides benefits through an insurance policy that, as required
by applicable State insurance laws, defines a significant break in
coverage as 90 days.
(ii) In this Example 3, the issuer that provides group health
insurance to Employer Q's plan must count A's period of creditable
coverage prior to the 63-day break.
Example 4. (i) Same facts as Example 3, except that Employer Q's
plan is a self-insured plan, and, thus is not subject to State
insurance laws.
(ii) In this Example 4, the plan is not governed by the longer
break rules under State insurance law and A's previous coverage may
be disregarded.
Example 5. (i) Individual B begins employment with Employer R 45
days after terminating coverage under a prior group health plan.
Employer R's plan has a 30-day waiting period before coverage
begins. B enrolls in Employer R's plan when first eligible.
(ii) In this Example 5, B does not have a significant break in
coverage for purposes of determining whether B's prior coverage must
be counted by Employer R's plan. B has only a 44-day break in
coverage because the 30-day waiting period is not taken into account
in determining a significant break in coverage.
Example 6. (i) Individual C works for Employer S and has
creditable coverage under Employer S's plan for 200 days before C's
employment is terminated and coverage ceases. C is then unemployed
for 51 days before being hired by Employer T. Employer T's plan has
a 3-month waiting period. C works for Employer T for 2 months and
then terminates employment. Eleven days after terminating employment
with Employer T, C begins working for Employer U. Employer
[[Page 16932]]
U's plan has no waiting period, but has a 6-month preexisting
condition exclusion period.
(ii) In this Example 6, C does not have a significant break in
coverage because, after disregarding the waiting period under
Employer T's plan, C had only a 62-break in coverage (51 days plus
11 days). Accordingly, C has 200 days of creditable coverage and
Employer U's plan may not apply its 6-month preexisting condition
exclusion period with respect to C.
Example 7. (i) Individual D terminates employment with Employer
V on January 13, 1998 after being covered for 24 months under
Employer V's group health plan. On March 17, the 63rd day without
coverage, D applies for a health insurance policy in the individual
market. D's application is accepted and the coverage is made
effective May 1.
(ii) In this Example 7, because D applied for the policy before
the end of the 63rd day, coverage under the policy ultimately became
effective, the period between the date of application and the first
day of coverage is a waiting period and no significant break in
coverage occurred even though the actual period without coverage was
107 days.
Example 8. (i) Same facts as Example 7, except that D's
application for a policy in the individual market is denied.
(ii) In this Example 8, because D did not obtain coverage
following application, D incurred a significant break in coverage on
the 64th day.
(v) Other permissible counting methods--(A) Rule. Notwithstandng
any other provision of this paragraph (b)(2), for purposes of reducing
a preexisting condition exclusion period (but not for purposes of
issuing a certificate under Sec. 54,9801-5T), a group health plan may
determine the amount of creditable coverage in any other manner that is
at least as favorable to the individual as the method set forth in this
paragraph (b)(2), subject to the requirements of other applicable law.
(B) Example. The rule of this paragraph (b)(2)(v) is illustrated by
the following example:
Example. (i) Individual F has coverage under group health plan Y
from January 3, 1997 through March 25, 1997. F then becomes covered
by group health plan Z. F's enrollment date in Plan Z is May 1,
1997. Plan Z has a 12-month preexisting condition exclusion period.
(ii) In this Example, Plan Z may determine, in accordance with
the rules prescribed in paragraph (b)(2) (i), (ii), and (iii), that
F has 82 days of creditable coverage (29 days in January, 28 days in
February, and 25 days in March). Thus, the preexisting condition
exclusion period will no longer apply to F on February 8, 1998 (82
days before the 12-month anniversary of her enrollment (May 1)), For
administrative convenience, however, Plan Z may consider that the
preexisting condition exclusion period will no longer apply to F on
the first day of the month (February 1).
(c) Alternative method--(1) Specific benefits considered. Under the
alternative method, a group health plan determines the amount of
creditable coverage based on coverage within any category of benefits
described in paragraph (c)(3) of this section and not based on coverage
for any other benefits. The plan may use the alternative method for any
or all the categories. The plan may apply a different preexisting
condition exclusion period with respect to each category (and may apply
a different preexisting condition exclusion period for benefits that
are not within any category). The creditable coverage determined for a
category of benefits applies only for purposes of reducing the
preexisting condition exclusion period with respect to that category.
An individual's creditable coverage for benefits that are not within
any category for which the alternative method is being used is
determined under the standard method of paragraph (b) of this section.
(2) Uniform application. A plan using the alternative method is
required to apply it uniformly to all participants and beneficiaries
under the plan. A plan that provides benefits through one or more
insurance policies (or in part through one or more insurance policies)
will not fail the uniform application requirement of this paragraph
(c)(2) if the alternative method is used (or not used) separately with
respect to participants and beneficiaries under any policy, provided
that the alternative method is applied uniformly with respect to all
coverage under that policy. The use of the alternative method is
required to be set forth in the plan.
(3) Categories of benefits. The alternative method for counting
creditable coverage may be used for coverage for the following
categories of benefits--
(i) Mental health;
(ii) Substance abuse treatment;
(iii) Prescription drugs;
(iv) Dental care; or
(v) Vision care.
(4) Plan notice. If the alternative method is used, the plan is
required to--
(i) State prominently that the plan is using the alternative method
of counting creditable coverage in disclosure statements concerning the
plan, and state this to each enrollee at the time of enrollment under
the plan; and
(ii) Include in these statements a description of the effect of
using the alternative method, including an identification of the
categories used.
(5) Disclosure of information on previous benefits. See
Sec. 54.9801-5T(b) for special rules concerning disclosure of coverage
to a plan (or issuer) using the alternative method of counting
creditable coverage under this paragraph (c).
(6) Counting creditable coverage--(i) In general. Under the
alternative method, the group health plan counts creditable coverage
within a category if any level of benefits is provided within the
category. Coverage under a reimbursement account or arrangement such as
a flexible spending arrangement (as defined in section 106(c)(2) of the
Internal Revenue Code) does not constitute coverage within any
category.
(ii) Special rules. In counting an individual's creditable coverage
under the alternative method, the group health plan first determines
the amount of the individual's creditable coverage that may be counted
under paragraph (b) of this section, up to a total of 365 days of the
most recent creditable coverage (546 days for a late enrollee). The
period over which this creditable coverage is determined is referred to
as the determination period. Then, for the category specified under the
alternative method, the plan counts within the category all days of
coverage that occurred during the determination period (whether or not
a significant break in coverage for that category occurs), and reduces
the individual's preexisting condition exclusion period for that
category by that number of days. The plan may determine the amount of
creditable coverage in any other reasonable manner, uniformly applied,
this is at least as favorable to the individual.
(iii) Example. The rules of this paragraph (c)(6) are illustrated
by the following example:
Example. (i) Individual D enrolls in Employer V's plan on
January 1, 2001. Coverage under the plan includes prescription drug
benefits. On April 1, 2001, the plan ceases providing prescription
drug benefits. D's employment with Employer V ends on January 1,
2002, after D was covered under Employer V's group health plan for
365 days. D enrolls in Employer Y's plan on February 1, 2002 (D's
enrollment date). Employer Y's plan uses the alternative method of
counting creditable coverage and imposes a 12-month preexisting
condition exclusion on prescription drug benefits.
(ii) In this Example, Employer Y's plan may impose a 275-day
preexisting condition exclusion with respect to D for prescription
drug benefits because D had 90 days of creditable coverage relating
to prescription drug benefits within D's determination period.
Sec. 54.9801-5T Certification and disclosure of previous coverage
(temporary).
(a) Certificate of creditable coverage--(1) Entities required to
provide certificate--(i) In general. A group
[[Page 16933]]
health plan is required to furnish certificates of creditable coverage
in accordance with this paragraph (a) of this section. (See PHSA
section 2701(e) and ERISA section 701(e) under which this obligation is
also imposed on a health insurance issuer offering group health
insurance coverage.)
(ii) Duplicate certificates not required. An entity required to
provide a certificate under this paragraph (a)(1) for an individual is
deemed to have satisfied the certification requirements for that
individual if another party provides the certificate, but only to the
extent that information relating to the individual's creditable
coverage and waiting or affiliation period is provided by the other
party. For example, a group health plan is deemed to have satisfied the
certification requirement with respect to a participant or beneficiary
if any other entity actually provides a certificate that includes the
information required under paragraph (a)(3) of this section with
respect to the participant or beneficiary.
(iii) Special rule for group health plans. To the extent coverage
under a plan consists of group health insurance coverage, the plan is
deemed to have satisfied the certification requirements under this
paragraph (a)(1) if any issuer offering the coverage is required to
provide the certificates pursuant to an agreement between the plan and
the issuer. For example, if there is an agreement between an issuer and
the employer sponsoring the plan under which the issuer agrees to
provide certificates for individuals covered under the plan, and the
issuer fails to provide a certificate to an individual when the plan
would have been required to provide one under this paragraph (a), then
the plan does not violate the certification requirements of this
paragraph (a) (though the issuer would have violated the certification
requirements pursuant to section 2701(e) of the PHSA and section 701(e)
of ERISA).
(iv) Special rules relating to issuers providing coverage under a
plan--(A)(1) Responsibility of issuer for coverage period. See 29 CFR
2590.701-5 and 45 CFR 146.115, under which an issuer is not required to
provide information regarding coverage provided to an individual by
another party.
(2) Example. The rule referenced by this paragraph (a)(1)(iv)(A) is
illustrated by the following example:
Example. (i) A plan offers coverage with an HMO option from one
issuer and an indemnity option from a different issuer. The HMO has
not entered into an agreement with the plan to provide certificates
as permitted under paragraph (a)(1)(iii) of this section.
(ii) In this Example, if an employee switches from the indemnity
option to the HMO option and later ceases to be covered under the
plan, any certificate provided by the HMO is not required to provide
information regarding the employee's coverage under the indemnity
option.
(B) (1) Cessation of issuer coverage prior to cessation of coverage
under a plan. If an individual's coverage under an issuer's policy
ceases before the individual's coverage under the plan ceases, the
issuer is required (under section 2701(e) of the PHSA and section
701(e) of ERISA) to provide sufficient information to the plan (or to
another party designated by the plan) to enable a certificate to be
provided by the plan (or other party), after cessation of the
individual's coverage under the plan, that reflects the period of
coverage under the policy. The provision of that information to the
plan will satisfy the issuer's obligation to provide an automatic
certificate for that period of creditable coverage for the individual
under paragraph (a)(2)(ii) and (3) of this section. In addition, an
issuer providing that information is required to cooperate with the
plan in responding to any request made under paragraph (b)(2) of this
section (relating to the alternative method of counting creditable
coverage). If the individual's coverage under the plan ceases at the
time the individual's coverage under the issuer's policy ceases, the
issuer must provide an automatic certificate under paragraph (a)(2)(ii)
of this section. An issuer may presume that an individual whose
coverage ceases at a time other than the effective date for changing
enrollment options has ceased to be covered under the plan.
(2) Example. The rule of this paragraph (a)(1)(iv)(B) is
illustrated by the following example:
Example. (i) A group health plan provides coverage under an HMO
option and an indemnity option with a different issuer, and only
allows employees to switch on each January 1. Neither the HMO nor
the indemnity issuer has entered into an agreement with the plan to
provide automatic certificates as permitted under paragraph
(a)(2)(ii) of this section.
(ii) In this Example, if an employee switches from the indemnity
option to the HMO option on January 1, the issuer must provide the
plan (or a person designated by the plan) with appropriate
information with respect to the individual's coverage with the
indemnity issuer. However, if the individual's coverage with the
indemnity issuer ceases at a date other than January 1, the issuer
is instead required to provide the individual with an automatic
certificate.
(2) Individuals for whom certificate must be provided; timing of
issuance--(i) Individuals. A certificate must be provided, without
charge, for participants or dependents who are or were covered under a
group health plan upon the occurrence of any of the events described in
paragraph (a)(2)(ii) or (iii) of this section.
(ii) Issuance of automatic certificates. The certificates described
in this paragraph (a)(2)(ii) are referred to as automatic certificates.
(A) Qualified beneficiaries upon a qualifying event. In the case of
an individual who is a qualified beneficiary (as defined in section
4980B(g)(1)) entitled to elect COBRA continuation coverage, an
automatic certificate is required to be provided at the time the
individual would lose coverage under the plan in the absence of COBRA
continuation coverage or alternative coverage elected instead of COBRA
continuation coverage. A plan satisfies this requirement if it provides
the automatic certificate no later than the time a notice is required
to be furnished for a qualifying event under section 4980B(f)(6)
(relating to notices required under COBRA).
(B) Other individuals when coverage ceases. In the case of an
individual who is not a qualified beneficiary entitled to elect COBRA
continuation coverage, an automatic certificate is required to be
provided at the time the individual ceases to be covered under the
plan. A plan satisfies this requirement if it provides the automatic
certificate within a reasonable time period thereafter. In the case of
an individual who is entitled to elect to continue coverage under a
State program similar to COBRA and who receives the automatic
certificate not later than the time a notice is required to be
furnished under the State program, the certificate is deemed to be
provided within a reasonable time period after the cessation of
coverage under the plan.
(C) Qualified beneficiaries when COBRA ceases. In the case of an
individual who is a qualified beneficiary and has elected COBRA
continuation coverage (or whose coverage has continued after the
individual became entitled to elect COBRA continuation coverage), an
automatic certificate is to be provided at the time the individual's
coverage under the plan ceases. A plan satisfies this requirement if it
provides the automatic certificate within a reasonable time after
coverage ceases (or after the expiration of any grace period for
nonpayment of premiums). An automatic certificate is required to be
provided to such an individual regardless of whether the individual has
previously received an automatic certificate under paragraph
(a)(2)(ii)(A) of this section.
[[Page 16934]]
(iii) Any individual upon request. Requests for certificates are
permitted to be made by, or on behalf of, an individual within 24
months after coverage ceases. Thus, for example, a plan in which an
individual enrolls may, if authorized by the individual, request a
certificate of the individual's creditable coverage on behalf of the
individual from a plan in which the individual was formerly enrolled.
After the request is received, a plan or issuer is required to provide
the certificate by the earliest date that the plan, acting in a
reasonable and prompt fashion, can provide the certificate. A
certificate is required to be provided under this paragraph (a)(2)(iii)
even if the individual has previously received an automatic certificate
under paragraph (a)(2)(ii) of this section.
(iv) Examples. The following examples illustrate the rules of this
paragraph (a)(2):
Example 1. (i) Individual A terminates employment with Employer
Q. A is a qualified beneficiary entitled to elect COBRA continuation
coverage under Employer q's group health plan. A notice of the
rights provided under COBRA is typically furnished to qualified
beneficiaries under the plan within 10 days after a covered employee
terminates employment.
(ii) In this Example 1, the automatic certificate may be
provided at the same time that A is provided the COBRA notice.
Example 2., (i) Same facts as Example 1, except that the
automatic certificate for A is not completed by the time the COBRA
notice is furnished to A.
(ii) In this Example 2, the automatic certificate may be
provided within the period permitted by law for the delivery of
notices under COBRA.
Example 3. (i) Employer R maintains an insured group health
plan. R has never had 20 employees and thus R's plan is not subject
to the COBRA continuation coverage provisions. However, R is in a
State that has a State program similar to COBRA. B terminates
employment with R and loses coverage under R's plan.
(ii) In this Example 3, the automatic certificate may be
provided not later than the time a notice is required to be
furnished under the State program.
Example 4. (i) Individual C terminates employment with Employer
S and receives both a notice of C's rights under COBRA and an
automatic certificate. C elects COBRA continuation coverage under
Employer S's group health plan. After four months of COBRA
continuation coverage and the expiration of a 30-day grace period,
S's group health plan determines that C's COBRA continuation
coverage has ceased due to failure to make a timely payment for
continuation coverage.
(ii) In this Example 4, the plan must provide an updated
automatic certificate to C within a reasonable time after the end of
the grace period.
Example 5. (i) Individual D is currently covered under the group
health plan of Employer T. D requests a certificate, as premitted
under paragraph (a)(2)(iii). Under the procedure for Employer T's
plan, certificates are mailed (by first class mail) 7 business days
following receipt of the request. This date reflects the earliest
date that the plan, acting in a reasonable and prompt fashion, can
provide certificates.
(ii) In this Example 5, the plan's procedure satisfies paragraph
(a)(2)(iii) of this section.
(3) Form and content of certificate-- (i) Written certificate--(A)
In general. Except as provided in paragraph (a)(3)(i)(B) of this
section, the certificate must be provided in writing (including any
form approved by the Secretary as a writing).
(B) Other permissible forms. No written certificate is required to
be provided under paragraph (a) with respect to a particular event
described in paragraph (a)(2) (ii) or (iii) of this section if----
(1) An individual is entitled to receive a certificate;
(2) The individual requests that the certificate be sent to another
plan or issuer instead of to the individual;
(3) The plan or issuer that would otherwise receive the certificate
agrees to accept the information in this paragraph (a)(3) through means
other than a written certificate (e.g., by telephone); and
(4) The receiving plan or issuer receives such information from the
sending plan or issuer in such form within the time periods required
under paragraph (a)(2) of this section.
(ii) Required information. The certificate must include the
following----
(A) The date the certificate is issued;
(B) The name of the group health plan that provided the coverage
described in the certificate;
(C) The name of the participant or dependent with respect to whom
the certificate applies, and any other information necessary for the
plan providing the coverage specified in the certificate to identify
the individual, such as the individual's identification number under
the plan and the name of the participant if the certificate is for (or
includes) a dependent;
(D) The name, address, and telephone number of the plan
administrator or issuer required to provide the certificate;
(E) The telephone number to call for further information regarding
the certificate (if different from paragraph (a)(3)(ii)(D) of this
section);
(F) Either--
(1) A statement that an individual has at least 18 months (for this
purpose, 546 days is deemed to be 18 months) of creditable coverage,
disregarding days of creditable coverage before a significant break in
coverage, or
(2) The date any waiting period (and affiliation period, if
applicable) began and the date creditable coverage began; and
(G) The date creditable coverage ended, unless the certificate
indicates that creditable coverage is continuing as of the date of the
certificate.
(iii) Periods of coverage under certificate. If an automatic
certificate is provided pursuant to paragraph (a)(2)(ii) of this
section, the period that must be included on the certificate is the
last period of continuous coverage ending on the date coverage ceased.
If an individual requests a certificate pursuant to paragraph
(a)(2)(iii) of this section, a certificate must be provided for each
period of continuous coverage ending within the 24-month period ending
on the date of the request (or continuing on the date of the request).
A separate certificate may be provided for each such period of
continuous coverage.
(iv) Combining information for families. A certificate may provide
information with respect to both a participant and the participant's
dependents if the information is identical for each individual or, if
the information is not identical, certificates may be provided on one
form if the form provides all the required information for each
individual and separately states the information that is not identical.
(v) Model certificate. The requirements of paragraph (a)(3)(ii) of
this section are satisfied if the plan provides a certificate in
accordance with a model certificate authorized by the Secretary.
(vi) Excepted benefits; categories of benefits. No certificate is
required to be furnished with respect to excepted benefits described in
Sec. 54.9804-1T. In addition, the information in the certificate
regarding coverage is not required to specify categories of benefits
described in Sec. 54.9801-4T(c) (relating to the alternative method of
counting creditable coverage). However, if excepted benefits are
provided concurrently with other creditable coverage (so that the
coverage does not consist solely of excepted benefits), information
concerning the benefits may be required to be disclosed under paragraph
(b) of this section.
(4) Procedures--(i) Method of delivery. The certificate is required
to be provided to each individual described in paragraph (a)(2) of this
section or an entity requesting the certificate on behalf of the
individual. The certificate
[[Page 16935]]
may be provided by first-class mail. If the certificate or certificates
are provided to the participant and the participant's spouse at the
participant's last known address, then the requirements of this
paragraph (a)(4) are satisfied with respect to all individuals residing
at that address. If a dependent's last known address is different than
the participant's last known address, a separate certificate is
required to be provided to the dependent at the dependent's last known
address. If separate certificates are being provided by mail to
individuals who reside at the same address, separate mailings of each
certificate are not required.
(ii) Procedure for requesting certificates. A plan or issuer must
establish a procedure for individuals to request and receive
certificates pursuant to paragraph (a)(2)(iii) of this section.
(iii) Designated recipients. If an automatic certificate is
required to be provided under paragraph (a)(2)(ii) of this section, and
the individual entitled to receive the certificate designates another
individual or entity to receive the certificate, the plan or issuer
responsible for providing the certificate is permitted to provide the
certificate to the designated party. If a certificate is required to be
provided upon request under paragraph (a)(2)(iii) of this section and
the individual entitled to receive the certificate designates another
individual or entity to receive the certificate, the plan or issuer
responsible for providing the certificate is required to provide the
certificate to the designated party.
(5) Special rules concerning dependent coverage--(i)(A) Reasonable
efforts. A plan is required to use reasonable efforts to determine any
information needed for a certificate relating to the dependent
coverage. In any case in which an automatic certificate is required to
be furnished with respect to a dependent under paragraph (a)(2)(ii) of
this section, no individual certificate is required to be furnished
until the plan knows (or making reasonable efforts should know) of the
dependent's cessation of coverage under the plan.
(B) Example. The rules of this paragraph (a)(5) are illustrated by
the following example:
Example. (i) A group health plan covers employees and their
dependents. The plan annually requests all employees to provide
updated information regarding dependents, including the specific
date on which an employee has a new dependent or on which a person
ceases to be a dependent of the employee.
(ii) In this Example, the plan has satisfied the standard in
this paragraph (a)(5)(i) of this section that it make reasonable
efforts to determine the cessation of dependents' coverage and the
related dependent coverage information.
(ii) Special rules for demonstrating coverage. If a certificate
furnished by a plan or issuer does not provide the name of any
dependent of an individual covered by the certificate, the individual
may, if necessary, use the procedures described in paragraph (c)(4) of
this section for demonstrating dependent status. In addition, an
individual may, if necessary, use these procedures to demonstrate that
a child was enrolled within 30 days of birth, adoption, or placement
for adoption. See Sec. 54.9801-3T(b), under which such a child would
not be subject to a preexisting condition exclusion.
(iii) Transition rule for dependent coverage through June 30,
1998--(A) In general. A group health plan that cannot provide the names
of dependents (or related coverage information) for purposes of
providing a certificate of coverage for a dependent may satisfy the
requirements of paragraph (a)(3)(ii)(C) of this section by providing
the name of the participant covered by the group health plan and
specifying that the type of coverage described in the certificate is
for dependent coverage (e.g., family coverage or employee-plus-spouse
coverage).
(B) Certificates provided on request. For purposes of certificates
provided on the request of, or on behalf of, an individual pursuant to
paragraph (a)(2)(iii) of this section, a plan must make reasonable
efforts to obtain and provide the names of any dependent covered by the
certificate where such information is requested to be provided. If a
certificate does not include the name of any dependent of an individual
covered by the certificate, the individual may, if necessary, use the
procedures described in paragraph (c) of this section for submitting
documentation to establish that the credible coverage in the
certificate applies to the dependent.
(C) Demonstrating a dependent's creditable coverage. See paragraph
(c)(4) of this section for special rules to demonstrate dependent
status.
(D) Duration. This paragraph (a)(5)(iii) is only effective for
certifications provided with respect to events occurring through June
30, 1998.
(6) Special specification rules for entities not subject to Chapter
100 of Subtitle K of the Internal Revenue Code--(i) Issuers. For rules
requiring that issuers in the group and individual markets provide
certificates consistent with the rules in this section, see section
701(e) of ERISA and sections 2701(e), 2721(b)(1)(B), and 2743 of the
PHSA.
(ii) Other entities. For special rules requiring that certain other
entities, not subject to Chapter 100 of Subtitle K of the Internal
Revenue Code, provide certificates consistent with the rules in the
section, see section 2791(a)(3) of the PHSA applicable to entities
described in sections 2701(c)(1) (C), (D), (E), and (F) (relating to
Medicare, Medicaid, CHAMPUS, and Indian Health Service), section
2721(b)(1)(A) of the PHSA applicable to nonfederal governmental plans
generally, and section 2721(b)(2)(C)(ii) of the PHSA applicable to
nonfederal governmental plans that elect to be excluded from the
requirements of Subparts 1 and 3 of Part A of Title XXVII of the PHSA.
(b) Disclosure of coverage to a plan, or issuer, using the
alternative method of counting creditable coverage--(1) In general. If
an individual enrolls in a group health plan with respect to which the
plan (or issuer) uses the alternative method of counting creditable
coverage described in Sec. 54.9801-4T(c), the individual provides a
certificate of coverage under paragraph (a) of this section, and the
plan (or issuer) in which the individual enrolls so requests, the
entity that issued the certificate (the prior entity) is required to
disclose promptly to a requesting plan (or issuer) (the requesting
entity) the information set forth in paragraph (b)(2) of this section.
(2) Information to be disclosed. The prior entity is required to
identify to the requesting entity the categories of benefits with
respect to which the requesting entity is using the alternative method
of counting creditable coverage, and the requesting entity may identify
specific information that the requesting entity reasonably needs to
order to determine the individual's creditable coverage with respect to
any such category. The prior entity is required to disclose promptly to
the requesting entity the creditable coverage information so requested.
(3) Charge for providing information. The prior entity furnishing
the information under paragraph (b) of this section may charge the
requesting entity for the reasonable cost of disclosing such
information.
(c) Ability of an individual to demonstrate creditable coverage and
waiting period information--(1) In general. The rules in this paragraph
(c) implement section 9801(c)(4), which permits individuals to
establish creditable coverage through means other than certificates,
and section 9801(e)(3), which requires the Secretary to establish rules
designed to prevent an
[[Page 16936]]
individual's subsequent coverage under a group health plan or health
insurance coverage from being adversely affected by an entity's failure
to provide a certificate with respect to that individual. If the
accuracy of a certificate is contested or a certificate is unavailable
when needed by the individual, the individual has the right to
demonstrate creditable coverage (and waiting or affiliation periods)
through the presentation of documents or other means. For example, the
individual may make such a demonstration when--
(i) An entity has failed to provide a certificate within the
required time period;
(ii) The individual has creditable coverage but an entity may not
be required to provide a certificate of the coverage pursuant to
paragraph (a) of this section;
(iii) The coverage is for a period before July 1, 1996;
(iv) The individual has an urgent medical condition that
necessitates a determination before the individual can deliver a
certificate to the plan; or
(v) The individual lost a certificate that the individual had
previously received and is unable to obtain another certificate.
(2) Evidence of creditable coverage--(i) Consideration of evidence.
A plan is required to take into account all information that it obtains
or that is presented on behalf of an individual to make a
determination, based on the relevant facts and circumstances, whether
an individual has creditable coverage and is entitled to offset all or
a portion of any preexisting condition exclusion period. A plan shall
treat the individual as having furnished a certificate under paragraph
(a) of this section if the individual attests to the period of
creditable coverage, the individual also presents relevant
corroborating evidence of some creditable coverage during the period,
and the individual cooperates with the plan's efforts to verify the
individual's coverage. For this purpose, cooperation includes providing
(upon the plan's or issuer's request) a written authorization for the
plan to request a certificate on behalf of the individual, and
cooperating in efforts to determine the validity of the corroborating
evidence and the dates of creditable coverage. While a plan may refuse
to credit coverage where the individual fails to cooperate with the
plan's or issuer's efforts to verify coverage, the plan may not
consider an individual's inability to obtain a certificate to be
evidence of the absence of creditable coverage.
(ii) Documents. Documents that may establish creditable coverage
(and waiting periods or affiliation periods) in the absence of a
certificate include explanations of benefit claims (EOB) or other
correspondence from a plan or issuer indicating coverage, pay stubs
showing a payroll deduction for health coverage, a health insurance
identification card, a certificate of coverage under a group health
policy, records from medical care providers indicating health coverage,
third party statements verifying periods of coverage, and any other
relevant documents that evidence periods of health coverage.
(iii) Other evidence. Creditable coverage (and waiting period or
affiliation period information) may also be established through means
other than documentation, such as by a telephone call from the plan or
provider to a third party verifying creditable coverage.
(iv) Example. The rules of this paragraph (c)(2) are illustrated by
the following example:
Example. (i) Individual F terminates employment with Employer W
and, a month later, is hired by Employer X. Employer X's group
health plan imposes a preexisting condition exclusion of 12 months
on new enrollees under the plan and uses the standard method of
determining creditable coverage. F fails to receive a certificate of
prior coverage from the self-insured group health plan maintained by
F's prior employer, Employer W, and requests a certificate. However,
F (and Employer's X's plan, on F's behalf) is unable to obtain a
certificate from Employer W's plan. F attests that, to the best of
F's knowledge, F had at least 12 months of continuous coverage under
Employer W's plan, and that the coverage ended no earlier than F's
termination of employment from Employer W. In addition, F presents
evidence of coverage, such as an explanation of benefits for a claim
that was made during the relevant period.
(ii) In this Example, based solely on these facts, F has
demonstrated creditable coverage for the 12 months of coverage under
Employer W's plan in the same manner as if F had presented a written
certificate of creditable coverage.
(3) Demonstrating categories of creditable coverage. Procedures
similar to those described in this paragraph (c) apply in order to
determine an individual's creditable coverage with respect to any
category under paragraph (b) of this section (relating to determining
creditable coverage under the alternative method).
(4) Demonstrating dependent status. If, in the course of providing
evidence (including a certificate) of creditable coverage, an
individual is required to demonstrate dependent status, the group
health plan or issuer is required to treat the individual as having
furnished a certificate showing the dependent status if the individual
attests to such dependency and the period of such status and the
individual cooperates with the plan's or issuer's efforts to verify the
dependent status.
(d) Determination and notification of creditable coverage--(1)
Reasonable time period. In the event that a group health plan receives
information under paragraph (a) of this section (certifications),
paragraph (b) of this section (disclosure of information relating to
the alternative method), or paragraph (c) of this section (other
evidence of creditable coverage), the plan is required, within a
reasonable time period following receipt of the information, to make a
determination regarding the indivdiual's period of creditable coverage
and notify the individual of the determination in accordance with
paragraph (d)(2) of this section. Whether a determination and
notification regarding an individual's creditable coverage is made
within a reasonable time period is determined based on the relevant
facts and circumstances. Relevant facts and circumstances include
whether a plan's application of a preexisting condition exclusion would
prevent an individual from having access to urgent medical services.
(2) Notification to individual of period of preexisting condition
exclusion. A plan seeking to impose a preexisting condition exclusion
is required to disclose to the individual, in writing, its
determination of any preexisting condition exclusion period that
applies to the individual, and the basis for such determination,
including the source and substance of any information on which the plan
relied. In addition, the plan is required to provide the individual
with a written explanation of any appeal procedures established by the
plan, and with a reasonable opportunity to submit additional evidence
of creditable coverage. However, nothing in this paragraph (d) or
paragraph (c) of this section prevents a plan from modifying an initial
determination of creditable coverage if it determines that the
individual did not have the claimed creditable coverage, provided
that--
(i) A notice of such reconsideration, as described in this
paragraph (d), is provided to the individual; and
(ii) Until the final determination is made, the plan, for purposes
of approving access to medical services (such as a pre-surgery
authorization), acts in a manner consistent with the initial
determination.
(3) Examples. The following examples illustrate this paragraph (d):
Example 1. (i) Individual G is hired by Employer Y. Employer Y's
group health plan
[[Page 16937]]
imposes a preexisting condition exclusion for 12 months with respect
to new enrollees and uses the standard method of determining
creditable coverage. Employer Y's plan determines that G is subject
to a 4-month preexisting condition exclusion, based on a certificate
of creditable coverage that is provided by G to Employer Y's plan
indicating 8 months of coverage under G's prior group health plan.
(ii) In this Example 1, Employer Y's plan must notify G within a
reasonable period of time following receipt of the certificate that
G is subject to a 4-month preexisting condition exclusion beginning
on G's enrollment date in Y's plan.
Example 2. (i) Same facts as in Example 1, except that Employer
Y's plan determines that G has 14 months of creditable coverage
based on G's certificate indicating 14 months of creditable coverage
under G's prior plan.
(ii) In this Example 2. Employer Y's plan is not required to
notify G that G will not be subject to a preexisting condition
exclusion.
Example 3. (i) Individual H is hired by Employer Z. Employer Z's
group health plan imposes a preexisting condition exclusion for 12
months with respect to new enrollees and uses the standard method of
determining creditable coverage. H develops an urgent health
condition before receiving a certificate of prior coverage. H
attests to the period of prior coverage, presents corroborating
documentation of the coverage period, and authorizes the plan to
request a certificate on H's behalf.
(ii) In this Example 3, Employer Z's plan must review the
evidence presented by H. In addition, the plan must make a
determination and notify H regarding any preexisting condition
exclusion period that applies to H (and the basis of such
determination) within a reasonable time period following receipt of
the evidence that is consistent with the urgency of H's health
condition (this determination may be modified as permitted under
paragraph (d)(2) of this section).
Sec. 54.9801-6T Special enrollment periods (temporary).
(a) Special enrollment for certain individuals who lose coverage--
(1) In general. A group health plan is required to permit employees and
dependents described in paragraph (a)(2), (3) or (4) of this section to
enroll for coverage under the terms of the plan if the conditions in
paragraph (a)(5) of this section are satisfied and the enrollment is
requested within the period described in paragraph (a)(6) of this
section. The enrollment is effective at the time described in paragraph
(a)(7) of this section. The special enrollment rights under this
paragraph (a) apply without regard to the dates on which an individual
would otherwise be able to enroll under the plan. (See PHSA section
2701(f)(1) and ERISA section 701(f)(1) under which this obligation is
also imposed on a health insurance issuer offering group health
insurance coverage.)
(2) Special enrollment of an employee only. An employee is
described in this paragraph (a)(2) if the employee is eligible, but not
enrolled, for coverage under the terms of the plan and, when enrollment
was previously offered to the employee under the plan and was declined
by the employee, the employee was covered under another group health
plan or had other health insurance coverage.
(3) Special enrollment of dependents only. A dependent is described
in this paragraph (a)(3) if the dependent is a dependent of an employee
participating in the plan, the dependent is eligible, but not enrolled,
for coverage under the terms of the plan, and, when enrollment was
previously offered under the plan was declined, the dependent was
covered under another group health plan or had other health insurance
coverage.
(4) Special enrollment of both employee and dependent. An employee
and any dependent of the employee are described in this paragraph
(a)(4) if they are eligible, but not enrolled, for coverage under the
terms of the plan and, when enrollment was previously offered to the
employee or dependent under the plan and was declined, the employee or
dependent was covered under another group health plan or had other
health insurance coverage.
(5) Conditions for special enrollment. An employee or dependent is
eligible to enroll during a special enrollment period if each of the
following applicable conditions is met:
(i) When the employee declined enrollment for the employee or the
dependent, the employee stated in writing that coverage under another
group health plan or other health insurance coverage was the reason for
declining enrollment. This paragraph (a)(5)(i) applies only if--
(A) The plan required such a statement when the employee declined
enrollment; and
(B) The employee is provided with notice of the requirement to
provide the statement in this paragraph (a)(5)(i) (and the consequences
of the employee's failure to provide the statement) at the time the
employee declined enrollment.
(ii)(A) When the employee declined enrollment for the employee or
dependent under the plan, the employee or dependent had CORRA
continuation coverage under another plan and COBRA continuation
coverage under that other plan has since been exhausted; or
(B) If the other coverage that applied to the employee or dependent
when enrollment was declined was not under a COBRA continuation
provision, either the other coverage has been terminated as a result of
loss of eligibility for the coverage or employer contributions towards
the other coverage have been terminated. For this purpose, loss of
eligibility for coverage includes a loss of coverage as a result of
legal separation, divorce, death, termination of employment, reduction
in the number of hours of employment, and any loss of eligibility after
a period that is measured by reference to any of the foregoing. Thus,
for example, if an employee's coverage ceases following a termination
of employment and the employee is eligible for but fails to elect COBRA
continuation coverage, this is treated as a loss of eligibility under
this paragraph (a)(5)(ii)(B). However, loss of eligibility does not
include a loss due to failure of the individual or the participant to
pay premiums on a timely basis or termination of coverage for cause
(such as making a fraudulent claim or an intentional misrepresentation
of a material fact in connection with the plan). In addition, for
purposes of this paragraph (a)(5)(ii)(B), employer contributions
include contributions by any current or former employer (of the
individual or another person) that was contributing to coverage for the
individual.
(6) Length of special enrollment period. The employee is required
to request enrollment (for the employee or the employee's dependent, as
described in paragraph (a) (2), (3), or (4) of this section) not later
than 30 days after the exhaustion of the other coverage described in
paragraph (a)(5)(ii)(A) of this section or termination of the other
coverage as a result of the loss of eligibility for the other coverage
for items described in paragraph (a)(5)(ii)(B) of this section or
following the termination of employer contributions toward that other
coverage. The plan may impose the same requirements that apply to
employees who are otherwise eligible under the plan to immediately
request enrollment for coverage (e.g., that the request be made in
writing).
(7) Effective date of enrollment. Enrollment is effective not later
than the first day of the first calendar month beginning after the date
the completed request for enrollment is received.
(b) Special enrollment with respect to certain dependent
beneficiaries--(1) In general. A group health plan that makes coverage
available with respect to dependents of a participant is required to
provide a special enrollment period to permit individuals described in
paragraph (b) (2), (3), (4), (5), or (6) of this section to be enrolled
for coverage under the terms of the plan if the enrollment is requested
within the time
[[Page 16938]]
period described in paragraph (b)(7) of this section. The enrollment is
effective at the time described in paragraph (b)(8) of this section.
The special enrollment rights under this paragraph (b) apply without
regard to the dates on which an individual would otherwise be able to
enroll under the plan.
(2) Special enrollment of an employee who is eligible but not
enrolled. An individual is described in this paragraph (b)(2) if the
individual is an employee who is eligible, but not enrolled, in the
plan, the individual would be a participant but for a prior election by
the individual not to enroll in the plan during a previous enrollment
period, and a person becomes a dependent of the individual through
marriage, birth, or adoption or placement for adoption.
(3) Special enrollment of a spouse of a participant. An individual
is described in this paragraph (b)(3) if either--
(i) The individual becomes the spouse of a participant; or
(ii) The individual is a spouse of the participant and a child
becomes a dependent of the participant through birth, adoption or
placement for adoption.
(4) Special enrollment of an employee who is eligible but not
enrolled and the spouse of such employee. An employee who is eligible,
but not enrolled, in the plan, and an individual who is a dependent of
such employee, are described in this paragraph (b)(4) if the employee
would be a participant but for a prior election by the employee not to
enroll in the plan during a previous enrollment period, and either--
(i) The employee and the individual become married; or
(ii) The employee and individual are married and a child becomes a
dependent of the employee through birth, adoption or placement for
adoption.
(5) Special enrollment of a dependent of a participant. An
individual is described in this paragraph (b)(5) if the individual is a
dependent of a participant and the individual becomes a dependent of
such participant through marriage, birth, or adoption or placement for
adoption.
(6) Special enrollment of an employee who is eligible but not
enrolled and a new dependent. An employee who is eligible, but not
enrolled, in the plan, and an individual who is a dependent of the
employee, are described in this paragraph (b)(6) if the employee would
be a participant but for a prior election by the employee not to enroll
in the plan during a previous enrollment period, and the dependent
becomes a dependent of the employee through marriage, birth, or
adoption or placement for adoption.
(7) Length of special enrollment period. The special enrollment
period under paragraph (b)(1) of this section is a period of not less
than 30 days and begins on the date of the marriage, birth, or adoption
or placement for adoption (except that such period does not begin
earlier than the date the plan makes dependent coverage generally
available).
(8) Effective date of enrollment. Enrollment is effective--
(i) In the case of marriage, not later than the first day of the
first calendar month beginning after the date the completed request for
enrollment is received by the plan;
(ii) In the case of a dependent's birth, the date of such birth;
and
(iii) In the case of a dependent's adoption or placement for
adoption, the date of such adoption or placement for adoption.
(9) Example. The rules of this paragraph (b) are illustrated by the
following example:
Example. (i) Employee A is hired on September 3, 1998 by
Employer X, which has a group health plan in which A can elect to
enroll either for employee-only coverage, for employee-plus-spouse
coverage, or for family coverage, effective on the first day of any
calendar quarter thereafter. A is married and has no children. A
does not elect to join Employer X's plan (for employee-only
coverage, employee-plus-spouse coverage, or family coverage) on
October 1, 1998 or January 1, 1999. On February 15, 1999, a child is
placed for adoption with A and A's spouse.
(ii) In this Example, the conditions for special enrollment of
an employee with a new dependent under paragraph (b)(2) of this
section are satisfied, the conditions for special enrollment of an
employee and a spouse with a new dependent under paragraph (b)(4) of
this section are satisfied, and the conditions for special
enrollment of an employee and a new dependent under paragraph (b)(6)
of this section are satisfied. Accordingly, Employer X's plan will
satisfy this paragraph (b) if and only if it allows A to elect, by
filing the required forms by March 16, 1999, to enroll in Employer
X's plan either with employee-only coverage, with employee-plus-
spouse coverage, or with family coverage, effective as of February
15, 1999.
(c) Notice of enrollment rights. On or before the time an employee
is offered the opportunity to enroll in a group health plan, the plan
is required to provide the employee with a description of the plan's
special enrollment rules under this section. For this purpose, the plan
may use the following model description of the special enrollment rules
under this section:
If you are declining enrollment for yourself or your dependents
(including your spouse) because of other health insurance coverage,
you may in the future be able to enroll yourself or your dependents
in this plan, provided that you request enrollment within 30 days
after your other coverage ends. In addition, if you have a new
dependent as a result of marriage, birth, adoption, or placement for
adoption, you may be able to enroll yourself and your dependents,
provided that you request enrollment within 30 days after the
marriage, birth, adoption, or placement for adoption.
(d) (1) Special enrollment date definition. A special enrollment
date for an individual means any date in paragraph (a)(7) or (b)(8) of
this section on which the individual has a right to have enrollment in
a group health plan become effective under this section.
(2) Examples. The rules of this section are illustrated by the
following examples:
Example 1. (i)(A) Employer Y maintains a group health plan that
allows employees to enroll in the plan either--
(1) Effective on the first day of employment by an election
filed within three days thereafter;
(2) Effective on any subsequent January 1 by an election made
during the preceding months of November or December; or
(3) Effective as of any special enrollment date described in
this section.
(B) Employee B is hired by Employer Y on March 15, 1998 and does
not elect to enroll in Employer Y's plan until January 31, 1999 when
B loses coverage under another plan. B elects to enroll in Employer
Y's plan effective on February 1, 1999, by filing the completed
request form by January 31, 1999, in accordance with the special
rule set forth in paragraph (a) of this section.
(ii) In this Example 1, B has enrolled on a special enrollment
date because the enrollment is effective at a date described in
paragraph (a)(7) of this section.
Example 2. (i) Same facts as Example 1, except that B's loss of
coverage under the other plan occurs on December 31, 1998 and B
elects to enroll in Employer Y's plan effective on January 1, 1999
by filing the completed request form by December 31, 1998, in
accordance with the special rule set forth in paragraph (a) of this
section.
(ii) In this Example 2, B has enrolled on a special enrollment
date because the enrollment is effective at a date described in
paragraph (a)(7) of this section (even though this date is also a
regular enrollment date under the plan).
Sec. 54.9802-1T Prohibiting discrimination against participants and
beneficiaries based on a health status-related factor (temporary).
(a) In eligibility to enroll--(1) In general. Subject to paragraph
(a)(2) of this section, a group health plan may not establish rules for
eligibility (including continued eligibility) of any individual to
enroll under the terms of the plan based on any of the following
[[Page 16939]]
health status-related factors in relation to the individual or a
dependent of the individual:
(i) Health status.
(ii) Medical condition (including both physical and mental
illnesses), as defined in Sec. 54.9801-2T.
(iii) Claims experience.
(iv) Receipt of health care.
(v) Medical history.
(vi) Genetic information, as defined in Sec. 54.9801-2T.
(vii) Evidence of insurability (including conditions arising out of
acts of domestic violence).
(viii) Disability.
(2) No application to benefits or exclusions. To the extent
consistent with section 9801 and Sec. 54.9801-3T, paragraph (a)(1) of
this section shall not be construed--
(i) To require a group health plan to provide particular benefits
other than those provided under the terms of such plan; or
(ii) To prevent such a plan from establishing limitations or
restrictions on the amount, level, extent, or nature of the benefits or
coverage for similarly situated individuals enrolled in the plan or
coverage.
(3) Construction. For purposes of paragraph (a)(1) of this section,
rules for eligibility to enroll include rules defining any applicable
waiting (or affiliation) periods for such enrollment and rules relating
to late and special enrollment.
(4) Example. The following example illustrates the rules of this
paragraph (a):
Example. (i) An employer sponsors a group health plan that is
available to all employees who enroll within the first 30 days of
their employment. However, individuals who do not enroll in the
first 30 days cannot enroll later unless they pass a physical
examination.
(ii) In this Example, the plan discriminates on the basis of one
or more health status-related factors.
(b) In premiums or contributions--(1) In general. A group health
plan may not require an individual (as a condition of enrollment or
continued enrollment under the plan) to pay a premium or contribution
that is greater than the premium or contribution for a similarly
situated individual enrolled in the plan based on any health status-
related factor, in relation to the individual or a dependent of the
individual.
(2) Construction. Nothing in paragraph (b)(1) of this section shall
be construed--
(i) To restrict the amount that an employer may be charged by an
issuer for coverage under a group health plan; or
(ii) To prevent a group health plan from establishing premium
discounts or rebates or modifying otherwise applicable copayments or
deductibles in return for adherence to a bona fide wellness program.
For purposes of this section, a bona fide wellness program is a program
of health promotion and disease prevention.
(3) Example. The rules of this paragraph (b) are illustrated by the
following example:
Example. (i) Plan X offers a premium discount to participants
who adhere to a cholesterol-reduction wellness program. Enrollees
are expected to keep a diary of their food intake over 6 weeks. They
periodically submit the diary to the plan physician who responds
with suggested diet modifications. Enrollees are to modify their
diets in accordance with the physician's recommendations. At the end
of the 6 weeks, enrollees are given a cholesterol test and those who
achieve a count under 200 receive a premium discount.
(ii) In this Example, because enrollees who otherwise comply
with the program may be unable to achieve a cholesterol count under
200 due to a health status-related factor, this is not a bona fide
wellness program and such discounts would discriminate impermissibly
based on one or more health status-related factors. However, if,
instead, individuals covered by the plan were entitled to receive
the discount for complying with the diary and dietary requirements
and were not required to pass a cholesterol test, the program would
be a bona fide wellness program.
Sec. 54.9804-1T Special rules relating to group health plans
(temporary).
(a) General exception small group health plans. The requirements of
Chapter 100 of Subtitle K of the Internal Revenue Code do not apply to
any group health plan for any plan year if, on the first day of the
plan year, the plan has fewer than 2 participants who are current
employees.
(b) Excepted benefits--(1) In general. The requirements of
Secs. 54.9801-1T through 54.9801-6T and 54.9802-1T do not apply to any
group health plan in relation to its provision of the benefits
described in paragraph (b) (2), (3), (4), or (5) of this section (or
any combination of these benefits).
(2) Benefits excepted in all circumstances. The following benefits
are excepted in all circumstances--
(i) Coverage only for accident (including accidental death and
dismemberment);
(ii) Disability income insurance;
(iii) Liability insurance, including general liability insurance
and automobile liability insurance;
(iv) Coverage issued as a supplement to liability insurance;
(v) Workers' compensation or similar insurance;
(vi) Automobile medical payment insurance;
(vii) Credit-only insurance (for example, mortgage insurance); and
(viii) Coverage for on-site medical clinics.
(3) Limited excepted benefits--
(i) In general. Limited-scope dental benefits, limited-scope vision
benefits, or long-term care benefits are excepted if they are provided
under a separate policy, certificate, or contract of insurance, or are
otherwise not an integral part of the plan, as defined in paragraph
(b)(3)(ii) of this section.
(ii) Integral. For purposes of paragraph (b)(3)(i) of this section,
benefits are deemed to be an integral part of a plan unless a
participate has the right to elect not to receive coverage for the
benefits and, if the participant elects to receive coverage for the
benefits, the participant pays an additional premium or contribution
for that coverage.
(iii) Limited scope. Limited scope dental or vision benefits are
dental or vision benefits that are sold under a separate policy or
rider and that are limited in scope in a narrow range or type of
benefits that are generally excluded from hospital/medical/surgical
benefit packages.
(iv) Long-term care. Long-term care benefits are benefits that are
either--
(A) Subject to State long-term care insurance laws;
(B) For qualified long-term care insurance services; as defined in
section 7702B(c)(1) of the Internal Revenue Code, or provided under a
qualified long-term care insurance contract, as defined in section
7702B(b); or
(C) Based on cognitive impairment or a loss of functional capacity
that is expected to be chronic.
(4) Noncoordinated benefits--(i) Excepted benefits that are not
coordinated. Covered for only a specified disease or illness (for
example, cancer-only policies) or hospital indemnity or other fixed
dollar indemnity insurance (for example, $100/day) is excepted only if
it meets each of the conditions specified in paragraph (b)(4)(ii) of
this section.
(ii) Conditions. Benefits are described in paragraph (b)(4)(i) of
this section only if--
(A) The benefits are provided under a separate policy, certificate,
or contract of insurance;
(B) There is not coordination between the provision of the benefits
and an exclusion of benefits under any group health plan maintained by
the same plan sponsor; and
(C) The benefits are paid with respect to an event without regard
to whether benefits are provided with respect to the
[[Page 16940]]
event under any group health plan maintained by the same plan sponsor.
(5) Supplemental benefits. The following benefits are excepted only
if they are provided under a separate policy, certificate, or contract
of insurance--
(i) Medicare supplemental health insurance (as defined under
section 1882(g)(1) of the Social Security Act; also known as Medigap or
MedSupp insurance);
(ii) Coverage supplemental to the coverage provided under Chapter
55, Title 10 of the United States Code (also known as CHAMPUS
supplemental programs); and
(iii) Similar supplemental coverage provided to coverage under a
group health plan.
(c) Treatment of partnerships. [Reserved]
Sec. 54.9806-1T Effective dates (temporary).
(a) General effective dates--(1) Non-collectively-bargained plans.
Except as otherwise provided in this section, Chapter 100 of Subtitle K
of the Internal Revenue Code and Secs. 54.9801-1T through 54.9804-1T
apply with respect to group health plans for plan years beginning after
June 30, 1997.
(2) Collectively bargained plans. Except as otherwise provided in
this section (other than paragraph (a)(1) of this section), in the case
of a group health plan maintained pursuant to one or more collective
bargaining agreements between employee representatives and one or more
employers ratified before August 21, 1996, Chapter 100 of Subtitle K of
the Internal Revenue Code and Secs. 54.9801-1T through 54.9804-1T do
not apply to plan years beginning before the later of July 1, 1997, or
the date on which the last of the collective bargaining agreements
relating to the plan terminates (determined without regard to any
extension thereof agreed to after August 21, 1996). For these purposes,
any plan amendment made pursuant to a collective bargaining agreement
relating to the plan, that amends the plan solely to conform to any
requirement of such part, is not treated as a termination of the
collective bargaining agreement.
(3)(i) Preexisting condition exclusion periods for current
employees. Any preexisting condition exclusion period permitted under
Sec. 54.9801-3T is measured from the individual's enrollment date in
the plan. Such exclusion period, as limited under Sec. 54.9801-3T, may
be completed prior to the effective date of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA) for his or her plan.
Therefore, on the date the individual's plan becomes subject to Chapter
100 of Subtitle K of the Internal Revenue Code, no preexisting
condition exclusion may be imposed with respect to an individual beyond
the limitation in Sec. 54.9801-3T. For an individual who has not
completed the permitted exclusion period under HIPPA, upon the
effective date for his or her plan, the individual may use creditable
coverage that the individual had prior to the enrollment date to reduce
the remaining preexisting condition exclusion period applicable to the
individual.
(ii) Examples. The following examples illustrate the rules of this
paragraph (a)(3):
Example 1. (i) Individual A has been working for Employer X and
has been covered under Employer X's plan since March 1, 1997. Under
Employer X's plan, as in effect before January 1, 1998, there is no
coverage for any preexisting condition. Employer X's plan year
begins on January 1, 1998. A's enrollment date in the plan is March
1, 1997 and A has no creditable coverage before this date.
(ii) In this Example 1, Employer X may continue to impose the
preexisting condition exclusion under the plan through February 28,
1998 (the end of the 12-month period using anniversary dates).
Example 2. (i) Same facts as in Example 1, except that A's
enrollment date was August 1, 1996, instead of March 1, 1997.
(ii) In this Example 2, on January 1, 1998, Employer X's plan
may no longer exclude treatment for any preexisting condition that A
may have; however, because Employer X's plan is not subject to HIPAA
until January 1, 1998, A is not entitled to claim reimbursement for
expenses under the plan for treatments for any preexisting condition
of A received before January 1, 1998.
(b) Effective date for certification requirement--(1) In general.
Subject to the transitional rule in Sec. 54.9801-5T(a)(5)(iii), the
certification rules of Sec. 54.9801-5T apply to events occurring on or
after July 1, 1996.
(2) Period covered by certificate. A certificate is not required to
reflect coverage before July 1, 1996.
(3) No certificate before June 1, 1997. Notwithstanding any other
provision of Sec. 54.9801-5T, in no case is a certificate required to
be provided before June 1, 1997.
(c) Limitation on actions. No enforcement action is to be taken,
pursuant to Chapter 100 of Subtitle K of the Internal Revenue Code,
against a group health plan or health insurance issuer with respect to
a violation of a requirement imposed by Chapter 100 of Subtitle K of
the Internal Revenue Code before January 1, 1998 if the plan or issuer
has sought to comply in good faith with such requirements. Compliance
with these regulations is deemed to be good faith compliance with the
requirements of Chapter 100 of Subtitle K.
(d) Transition rules for counting creditable coverage. An
individual who seeks to establish creditable coverage for periods
before July 1, 1996 is entitled to establish such coverage through the
presentation of documents or other means in accordance with the
provisions of Sec. 54.9801-5T(c). For coverage relating to an event
occurring before July 1, 1996, a group health plan and a health
insurance issuer is not subject to any penalty or enforcement action
with respect to the plan's or issuer's counting (or not counting) such
coverage if the plan or issuer has sought to comply in good faith with
the applicable requirements under Sec. 54.9801-5T(c).
(e) Transition rules for certificates of creditable coverage--(1)
Certificates only upon request. For events occurring on or after July
1, 1996 but before October 1, 1996, a certificate is required to be
provided only upon a written request by or on behalf of the individual
to whom the certificate applies.
(2) Certificates before June 1, 1997. For events occurring on or
after October 1, 1996 and before June 1, 1997, a certificate must be
furnished no later than June 1, 1997, or any later date permitted under
Sec. 54.9801-5T(a)(2) (ii) and (iii).
(3) Optional notice--(i) In general. This paragraph (e)(3) applies
with respect to events described in Sec. 54.9801-5T(a)(5)(ii), that
occur on or after October 1, 1996 but before June 1, 1997. A group
health plan or health insurance issuer offering group health coverage
is deemed to satisfy Sec. 54.9801-5T(a) (2) and (3) if a notice is
provided in accordance with the provisions of paragraphs (e)(3) (i)
through (iv) of this section.
(ii) Time of notice. The notice must be provided no later than June
1, 1997.
(iii) Form and content of notice. A notice provided pursuant to
this paragraph (e)(3) must be in writing and must include information
substantially similar to the information included in a model notice
authorized by the Secretary. Copies of the model notice are available
at the following website--http://www.irs.ustreas.gov (or call (202)
622-4695).
(iv) Providing certificate after request. If an individual requests
a certificate following receipt of the notice, the certificate must be
provided at the time of the request as set forth in Sec. 54.9801-
5T(a)(5)(iii).
(v) Other certification rules apply. The rules set forth in
Sec. 54.9801-5T(a)(4)(i) (method of delivery) and
[[Page 16941]]
54.9801-5T(a)(1) (entities required to provide a certificate) apply
with respect to the provision of the notice.
Dated: March 24, 1997.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved:
Donald C. Lubick,
Assistant Secretary of the Treasury.
Pension and Welfare Benefits Administration
29 CFR Chapter XXV
For the reasons set forth above, Chapter XXV of Title 29 of the
Code of Federal Regulations is amended as set forth below:
1. A new Subchapter L, consisting of Part 2590, is added to read as
follows:
Subchapter L--Health Insurance Portability and Renewability for Group
Health Plans
PART 2590--RULES AND REGULATIONS FOR HEALTH INSURANCE PORTABILITY
AND RENEWABILITY FOR GROUP HEALTH PLANS
Subpart A--Requirements Relating to Access and Renewability of
Coverage, and Limitation on Preexisting Condition Exclusion Periods
Sec.
2590.701-1 Basis and scope.
2590.701-2 Definitions.
2590.701-3 Limitations on preexisting condition exclusion period.
2590.701-4 Rules relating to creditable coverage.
2590.701-5 Certification and disclosure of previous coverage.
2590.701-6 Special enrollment periods.
2590.701-7 HMO affiliation period as alternative to preexisting
condition exclusion.
2590.702 Prohibiting discrimination against participants and
beneficiaries based on a health status-related factor.
2590.703 Guaranteed renewability in multiemployer plans and
multiple employer welfare arrangements. [Reserved]
Subpart B--Other Requirements
2590.711 Standards relating to benefits for mothers and newborns.
[Reserved]
2590.712 Parity in the application of certain limits to mental
health benefits. [Reserved]
Subpart C--General Provisions
2590.731 Preemption; State flexibility; construction.
2590.732 Special rules relating to group health plans.
2590.734 Enforcement. [Reserved]
2590.736 Effective dates.
Authority: Sec. 29 U.S.C. 1027, 1059, 1135, 1171, 1194; Sec.
101, Pub. L. 104-191, 101 Stat. 1936 (29 U.S.C. 1181); Secretary of
labor's Order No. 1-87, 52 FR 13139, April 21, 1987.
Subpart A--Requirements Relating to Access and Renewability of
Coverage, and Limitations on Preexisting Condition Exclusion
Periods
Sec. 2590.701-1 Basis and scope.
(a) Statutory basis. This subpart implements Part 7 of Subtitle B
of Title I of the Employee Retirement Income Security Act of 1974, as
amended (hereinafter ERISA or the Act).
(b) Scope. A group health plan or health insurance issuer offering
group health insurance coverage may provide greater rights to
participants and beneficiaries than those set forth in this subpart.
This subpart A sets forth minimum requirements for group health plans
and health insurance issuers offering group health insurance coverage
concerning:
(1) Limitations on a preexisting condition exclusion period.
(2) Certificates and disclosure of previous coverage.
(3) Rules relating to counting creditable coverage.
(4) Special enrollment periods.
(5) Use of an affiliation period by an HMO as an alternative to a
preexisting condition exclusion.
Sec. 2590.701-2 Definitions.
Unless otherwise provided, the definitions in this section govern
in applying the provisions of Secs. 2590.701 through 2590.734.
Affiliation period means a period of time that must expire before
health insurance coverage provided by an HMO becomes effective, and
during which the HMO is not required to provide benefits.
COBRA definitions:
(1) COBRA means Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(2) COBRA continuation coverage means coverage, under a group
health plan, that satisfies an applicable COBRA continuation provision.
(3) COBRA continuation provision means sections 601-608 of the Act,
section 4980B of the Code (other than paragraph (f)(1) of such section
4980B insofar as it relates to pediatric vaccines), and Title XXII of
the PHSA.
(4) Exhaustion of COBRA continuation coverage means that an
individual's COBRA continuation coverage ceases for any reason other
than either failure of the individual to pay premiums on a timely
basis, or for cause (such as making a fraudulent claim or an
intentional misrepresentation of a material fact in connection with the
plan). An individual is considered to have exhausted COBRA continuation
coverage if such coverage ceases--
(i) Due to the failure of the employer or other responsible entity
to remit premiums on a timely basis; or
(ii) When the individual no longer resides, lives, or works in a
service area of an HMO or similar program (whether or not within the
choice of the individual) and there is no other COBRA continuation
coverage available to the individual.
Condition means a medical condition.
Creditable coverage means creditable coverage within the meaning of
Sec. 2590.701-4(a).
Enroll means to become covered for benefits under a group health
plan (i.e., when coverage becomes effective), without regard to when
the individual may have completed or filed any forms that are required
in order to enroll in the plan. For this purpose, an individual who has
health insurance coverage under a group health plan is enrolled in the
plan regardless of whether the individual elects coverage, the
individual is a dependent who becomes covered as a result of an
election by a participant, or the individual becomes covered without an
election.
Enrollment date definitions (enrollment date and first day of
coverage) are set forth in Sec. 2590.701-3(a)(2) (i) and (ii).
Excepted benefits means the benefits described as excepted in
Sec. 2590.732(b).
Genetic information means information about genes, gene products,
and inherited characteristics that may derive from the individual or a
family member. This includes information regarding carrier status and
information derived from laboratory tests that identify mutations in
specific genes or chromosomes, physical medical examinations, family
histories, and direct analysis of genes or chromosomes.
Group health insurance coverage means health insurance coverage
offered in connection with a group health plan.
Group health plan means an employee welfare benefit plan to the
extent that the plan provides medical care (including items and
services paid for as medical care) to employees or their dependents (as
defined under the terms of the plan) directly or through insurance,
reimbursement, or otherwise.
Group market means the market for health insurance coverage offered
in connection with a group health plan. (However, certain very small
plans may be treated as being in the individual market, rather than the
group market; see the definition of individual market in this section.)
Health insurance coverage means benefits consisting of medical care
(provided directly, through insurance or
[[Page 16942]]
reimbursement, or otherwise) under any hospital or medical service
policy or certificate, hospital or medical service plan contract, or
HMO contract offered by a health insurance issuer.
Health insurance issuer or issuer means an insurance company,
insurance service, or insurance organization (including an HMO) that is
required to be licensed to engage in the business of insurance in a
State and that is subject to State law that regulates insurance (within
the meaning of section 514(b)(2) of the Act). Such term does not
include a group health plan.
Health maintenance organization or HMO means--
(1) A federally qualified health maintenance organization (as
defined in section 1301(a) of the PHSA);
(2) An organization recognized under State law as a health
maintenance organization; or
(3) A similar organization regulated under State law for solvency
in the same manner and to the same extent as such a health maintenance
organization.
Individual health insurance coverage means health insurance
coverage offered to individuals in the individual market, but does not
include short-term, limited duration insurance. For this purpose,
short-term, limited-duration insurance means health insurance coverage
provided pursuant to a contract with an issuer that has an expiration
date specified in the contract (taking into account any extensions that
may be elected by the policyholder without the issuer's consent) that
is within 12 months of the date such contract becomes effective.
Individual health insurance coverage can include dependent coverage.
Individual market means the market for health insurance coverage
offered to individuals other than in connection with a group health
plan. Unless a State elects otherwise in accordance with section
2791(e)(1)(B)(ii) of the PHSA, such term also includes coverage offered
in connection with a group health plan that has fewer than two
participants as current employees on the first day of the plan year.
Internal Revenue Code (Code) means the Internal Revenue Code of
1986, as amended (Title 26, United States Code).
Issuer means a health insurance issuer.
Late enrollment definitions (late enrollee) and late enrollment)
are set forth in Sec. 2590.701-3(a)(2) (iii) and (iv).
Medical care means amounts paid for--
(1) The diagnosis, cure, mitigation, treatment, or prevention of
disease, or amounts paid for the purpose of affecting any structure or
function of the body;
(2) Transportation primarily for and essential to medical care
referred to in paragraph (1) of this definition; and
(3) Insurance covering medical care referred to in paragraphs (1)
and (2) of this definition.
Medical condition or condition means any condition, whether
physical or mental, including, but not limited to, any condition
resulting from illness, injury (whether or not the injury is
accidental), pregnancy, or congenital malformation. However, genetic
information is not a condition.
Placement, or being placed, for adoption means the assumption and
retention of a legal obligation for total or partial support of a child
by a person with whom the child has been placed in anticipation of the
child's adoption. The child's placement for adoption with such person
terminates upon the termination of such legal obligation.
Plan year means the year that is designated as the plan year in the
plan document of a group health plan, except that if the plan document
does not designate a plan year or if there is no plan document, the
plan year is--
(1) The deductible/limit year used under the plan;
(2) If the plan does not impose deductibles or limits on a yearly
basis, then the plan year is the policy year;
(3) If the plan does not impose deductibles or limits on a yearly
basis, and either the plan is not insured or the insurance policy is
not renewed on an annual basis, then the plan year is the employer's
taxable year; or
(4) In any other case, the plan year is the calendar year.
Preexisting condition exclusion means a limitation or exclusion of
benefits relating to a condition based on the fact that the condition
was present before the first day of coverage, whether or not any
medical advice, diagnosis, care, or treatment was recommended or
received before that day. A preexisting condition exclusion includes
any exclusion applicable to an individual as a result of information
that is obtained relating to an individual's health status before the
individual's first day of coverage, such as a condition identified as a
result of a pre-enrollment questionnaire or physical examination given
to the individual, or review of medical records relating to the pre-
enrollment period.
Public health plan means public health plan within the meaning of
Sec. 2590.701-4(a)(1)(ix).
Public Health Service Act (PHSA) means the Public Health Service
Act (42 U.S.C. 201, et seq.).
Significant break in coverage means a significant break in coverage
within the meaning of Sec. 2590.701-4(b)(2)(iii).
Special enrollment date means a special enrollment date within the
meaning of Sec. 2590.701-6(d).
State means each of the several States, the District of Columbia,
Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern
Mariana Islands.
State health benefits risk pool means a State health benefits risk
pool within the meaning of Sec. 2590.701-4(a)(1)(vii).
Waiting period means the period that must pass before an employee
or dependent is eligible to enroll under the terms of a group health
plan. If an employee or dependent enrolls as a late enrollee or on a
special enrollment date, any period before such late or special
enrollment is not a waiting period. If an individual seeks and obtains
coverage in the individual market, any period after the date the
individual files a substantially complete application for coverage and
before the first day of coverage is a waiting period.
Sec. 2590.701-3 Limitations on preexisting condition exclusion period.
(a) Preexisting condition exclusion--(1) In general. Subject to
paragraph (b) of this section, a group health plan, and a health
insurance issuer offering group health insurance coverage, may impose,
with respect to a participant or beneficiary, a preexisting condition
exclusion only if the requirements of this paragraph (a) are satisfied.
(i) 6-month look-back rule. A preexisting condition exclusion must
relate to a condition (whether physical or mental), regardless of the
cause of the condition, for which medical advice, diagnosis, care, or
treatment was recommended or received within the 6-month period ending
on the enrollment date.
(A) For purposes of this paragraph (a)(1)(i), medical advice,
diagnosis, care, or treatment is taken into account only if it is
recommended by, or received from, an individual licensed or similarly
authorized to provide such services under State law and operating
within the scope of practice authorized by State law.
(B) For purposes of this paragraph (a)(1)(i), the 6-month period
ending on the enrollment date begins on the 6-month anniversary date
preceding the enrollment date. For example, for an enrollment date of
August 1, 1998, the 6-month period preceding the enrollment date is the
period commencing on February 1, 1998 and continuing through July 31,
1998. As another example, for an enrollment date
[[Page 16943]]
of August 30, 1998, the 6-month period preceding the enrollment date is
the period commencing on February 28, 1998 and continuing through
August 29, 1998.
(C) The rules of this paragraph (a)(1)(i) are illustrated by the
following examples:
Example 1. (i) Individual A is treated for a medical condition 7
months before the enrollment date in Employer R's group health plan.
As part of such treatment, A's physician recommends that a follow-up
examination be given 2 months later. Despite this recommendation. A
does not receive a follow-up examination and no other medical
advice, diagnosis, care, or treatment for that condition is
recommended to A or received by A during the 6-month period ending
on A's enrollment date in Employer R's plan.
(ii) In this Example 1, Employer R's plan may not impose a
preexisting condition exclusion period with respect to the condition
for which A received treatment 7 months prior to the enrollment
date.
Example 2. (i) Same facts as Example 1, except that Employer R's
plan learns of the condition and attaches a rider to A's policy
excluding coverage for the condition. Three months after enrollment,
A's condition recurs, and Employer R's plan denies payment under the
rider.
(ii) In this Example 2, The rider is preexisting condition
exclusion and Employer R's plan may not impose a preexisting
condition exclusion with respect to the condition for which A
received treatment 7 months prior to the enrollment date.
Example 3. (i) Individual B has asthma and is treated for that
condition several times during the 6-month period before B's
enrollment date in Employer S's plan. The plan imposes a 12-month
preexisting condition exclusion. B has no prior creditable coverage
to reduce the exclusion period. Three months after the enrollment
date, B begins coverage under Employer S's plan. Two months later, B
is hospitalized asthma.
(ii) In this Example 3, Employer S's plan may exclude payment
for the hospital stay and the physician services associated with
this illness because the care is related to a medical condition for
which treatment was received by B during the 6-month period before
the enrollment date.
Example 4. (i) Individual D, who is subject to a preexisting
exclusion imposed by Employer U's plan, has diabetes, as well as a
foot condition caused by poor circulation and retinal degeneration
(both of which are conditions that may be directly attributed to
diabetes). After enrolling in the plan, D stumbles and breaks a leg.
(ii) In this Example 4, the leg is fracture is not a condition
related to D's diabetes, even though poor circulation in D's
extremities and poor vision may have contributed towards the
accident. However, any additional medical services that may be
needed because of D's preexisting diabetic condition that would not
be needed by another patient with a broken leg who does not have
diabetes may be subject to the preexisting condition exclusion
imposed under Employer U's plan.
(ii) Maximum length of preexisting condition exclusion (the look-
forward rule). A preexisting condition exclusion is not permitted to
extend for more than 12 months (18 months in the case of a late
enrollee) after the enrollment date. For purposes of this paragraph
(a)(1)(ii), the 12-month and 18-month periods after the enrollment date
are determined by reference to the anniversary of the enrollment date.
For example, for an enrollment date of August 1, 1998, the 12-month
period after the enrollment date is the period commencing on August 1,
1998 and continuing through July 31, 1999.
(iii) Reducing a preexisting condition exclusion period by
creditable coverage. The period of any preexisting condition exclusion
that would otherwise apply to an individual under a group health plan
is reduced by the number of days of creditable coverage the individual
has as of the enrollment date, as counted under Sec. 2590.701-4. For
purposes of this subpart the phrase ``days of creditable coverage'' has
the same meaning as the phrase ``aggregate of the periods of creditable
coverage'' as such term is used in section 701(a)(3) of the Act.
(iv) Other Standards. See Sec. 2590.702 for other standards that
may apply with respect to certain benefits limitations or restrictions
under a group health plan.
(2) Enrollment definitions--(i) Enrollment date means the first day
of coverage or, if there is a waiting period, the first day of the
waiting period.
(ii)(A) First day of coverage means, in the case of an individual
covered for benefits under a group health plan in the group market, the
first day of coverage under the plan and, in the case of an individual
covered by health insurance coverage in the individual market, the
first day of coverage under the policy.
(B) The following example illustrates the rule of paragraph
(a)(2)(ii)(A) of this section:
Example. (i) Employer V's group health plan provides for
coverage to begin on the first day of the first payroll period
following the date an employee is hired and completes the applicable
enrollment forms, or on any subsequent January 1 after completion of
the applicable enrollment forms. Employer's V's plan imposes a
preexisting condition exclusion for 12 months (reduced by the
individual's creditable coverage) following an individual's
enrollment date. Employee E is hired by Employer V on October 13,
1998 and then on October 14, 1998 completes and files all the forms
necessary to enroll in the plan. E's coverage under the plan becomes
effective on October 25, 1998 (which is the beginning of the first
payroll period after E's date of hire).
(ii) In this Example, E's enrollment date is October 13, 1998
(which is the first day of the waiting period for E's enrollment and
is also E's date of hire). Accordingly, with respect to E, the 6-
month period in paragraph (a)(1)(i) would be the period from April
13, 1998 through October 12, 1998, the maximum permissible period
during which Employer V's plan could apply a preexisting condition
exclusion under paragraph (a)(1)(ii) would be in the period from
October 13, 1998 through October 12, 1999, and this period would be
reduced under paragraph (a)(1)(iii) by E's days of creditable
coverage as of October 13, 1998.
(iii) Late enrollee means an individual whose enrollment in a plan
is a late enrollment.
(iv)(A) Late enrollment means enrollment under a group health plan
other than on--
(1) The earliest date on which coverage can become effective under
the terms of the plan; or
(2) A special enrollment date for the individual.
(B) If an individual ceases to be eligible for coverage under the
plan by terminating employment, and then subsequently becomes eligible
for coverage under the plan by resuming employment, only eligibility
during the individual's most recent period of employment is taken into
account in determining whether the individual is a late enrollee under
the plan with respect to the most recent period of coverage. Similar
rules apply if an individual again becomes eligible for coverage
following a suspension of coverage that applied generally under the
plan.
(v) Examples. The rules of this paragraph (a)(2) are illustrated by
the following examples:
Example 1. (i) Employee F first becomes eligible to be covered
by Employer W's group health plan on January 1, 1999, but elects not
to enroll in the plan until April 1, 1999. April 1, 1999 is not a
special enrollment date for F.
(ii) In this Example 1, F would be a late enrollee with respect
to F's coverage that became effective under the plan on April 1,
1999.
Example 2. (i) Same as Example 1, except that F does not enroll
in the plan on April 1, 1999 and terminates employment with Employer
W on July 1, 1999, without having had any health insurance coverage
under the plan. F is rehired by Employer W on January 1, 2000 and is
eligible for and elects coverage under Employer W's plan effective
on January 1, 2000.
(ii) In this Example 2, F would not be a late enrollee with
respect to F's coverage that became effective on January 1, 2000.
(b) Exceptions pertaining to preexisting condition exclusions--(1)
Newborns--(i) In general. Subject to
[[Page 16944]]
paragraph (b)(3) of this section, a group health plan, and a health
insurance issuer offering group health insurance coverage, may not
impose any preexisting condition exclusion with regard to a child who,
as of the last day of the 30-day period beginning with the date of
birth, is covered under any creditable coverage. Accordingly, if a
newborn is enrolled in a group health plan (or other creditable
coverage) within 30 days after birth and subsequently enrolls in
another group health plan without a significant break in coverage, the
other plan may not impose any preexisting condition exclusion with
regard to the child.
(ii) Example. The rule of this paragraph (b)(1) is illustrated by
the following example:
Example. (i) Seven months after enrollment in Employer W's group
health plan, Individual E has a child born with a birth defect.
Because the child is enrolled in Employer W's plan within 30 days of
birth, no preexisting condition exclusion may be imposed with
respect to the child under Employer W's plan. Three months after the
child's birth, E, commences employment with Employer X and enrolls
with the child in Employer X's plan 45 days after leaving Employer
W's plan. Employer X's plan imposes a 12-month exclusion for any
preexisting condition.
(ii) In this Example, Employer X's plan may not impose any
preexisting condition exclusion with respect to E's child because
the child was covered within 30 days of birth and had no significant
break in coverage. This result applies regardless of whether E's
child is included in the certificate of creditable coverage provided
to E by Employer W indicating 300 days of dependent coverage or
receives a separate certificate indicating 90 days of coverage.
Employer X's plan may impose a preexisting condition exclusion with
respect to E for up to 2 months for any preexisting condition of E
for which medical advice, diagnosis, care, or treatment was
recommended or received by E within the 6-month period ending on E's
enrollment date in Employer X's plan.
(2) Adopted children. Subject to paragraph (b)(3) of this section,
a group health plan, and a health insurance issuer offering group
health insurance coverage, may not impose any preexisting condition
exclusion in the case of a child who is adopted or placed for adoption
before attaining 18 years of age and who, as of the last day of the 30-
day period beginning on the date of the adoption or placement for
adoption, is covered under creditable coverage. This rule does not
apply to coverage before the date of such adoption or placement for
adoption.
(3) Break in coverage. Paragraphs (b) (1) and (2) of this section
no longer apply to a child after a significant break in coverage.
(4) Pregnancy. A group health plan, and a health insurance issuer
offering group health insurance coverage, may not impose a preexisting
condition exclusion relating to pregnancy as a preexisting condition.
(5) Special enrollment dates. For special enrollment dates relating
to new dependents, see Sec. 2590.701-6(b).
(c) Notice of plan's preexisting condition exclusion. A group
health plan, and health insurance issuer offering group health
insurance under the plan, may not impose a preexisting condition
exclusion with respect to a participant or dependent of the participant
before notifying the participant, in writing, of the existence and
terms of any preexisting condition exclusion under the plan and of the
rights of individuals to demonstrate creditable coverage (and any
applicable waiting periods) as required by Sec. 2590.701-5. The
description of the rights of individuals to demonstrate creditable
coverage includes a description of the right of the individual to
request a certificate from a prior plan or issuer, if necessary, and a
statement that the current plan or issuer will assist in obtaining a
certificate from any prior plan or issuer, if necessary.
Sec. 2590.701-4 Rules relating to creditable coverage.
(a) General rules--
(1) Creditable coverage. For purposes of this section, except as
provided in paragraph (a)(2) of this section, the term creditable
coverage means coverage of an individual under any of the following:
(i) A group health plan as defined in Sec. 2590.701-2.
(ii) Health insurance coverage as defined in Sec. 2590.701-2
(whether or not the entity offering the coverage is subject to Part 7
of Subtitle B of Title I of the Act, and without regard to whether the
coverage is offered in the group market, the individual market, or
otherwise).
(iii) Part A or B of Title XVIII of the Social Security Act
(Medicare).
(iv) Title XIX of the Social Security Act (Medicaid), other than
coverage consisting solely of benefits under section 1928 of the Social
Security Act (the program for distribution of pediatric vaccines).
(v) Title 10 U.S.C. Chapter 55 (medical and dental care for members
and certain former members of the uniformed services, and for their
dependents; for purposes of Title 10 U.S.C. Chapter 55, uniformed
services means the armed forces and the Commissioned Corps of the
National Oceanic and Atmospheric Administration and of the Public
Health Service).
(vi) A medical care program of the Indian Health Service or of a
tribal organization.
(vii) A State health benefits risk pool. For purposes of this
section, a State health benefits risk pool means--
(A) An organization qualifying under section 501(c)(26) of the
Code;
(B) A qualified high risk pool described in section 2744(c)(2) of
the PHSA; or
(C) Any other arrangement sponsored by a State, the membership
composition of which is specified by the State and which is established
and maintained primarily to provide health insurance coverage for
individuals who are residents of such State and who, by reason of the
existence or history of a medical condition--
(1) Are unable to acquire medical care coverage for such condition
through insurance or from an HMO, or
(2) Are able to acquire such coverage only at a rate which is
substantially in excess of the rate for such coverage through the
membership organization.
(viii) A health plan offered under Title 5 U.S.C. Chapter 89 (the
Federal Employees Health Benefits Program).
(ix) A public health plan. For purposes of this section, a public
health plan means any plan established or maintained by a State,
county, or other political subdivision of a State that provides health
insurance coverage to individuals who are enrolled in the plan.
(x) A health benefit plan under section 5(e) of the Peace Corps Act
(22 U.S.C. 2504(e)).
(2) Excluded coverage. Creditable coverage does not include
coverage consisting solely of coverage of excepted benefits (described
in Sec. 2590.732).
(3) Methods of counting creditable coverage. For purposes of
reducing any preexisting condition exclusion period, as provided under
Sec. 2590.701-3(a)(1)(iii), a group health plan, and a health insurance
issuer offering group health insurance coverage, determines the amount
of an individual's creditable coverage by using the standard method
described in paragraph (b) of this section, except that the plan, or
issuer, may use the alternative method under paragraph (c) of this
section with respect to any or all of the categories of benefits
described under paragraph (c)(3) of this section.
(b) Standard method--(1) Specific benefits not considered. Under
the standard method, a group health plan, and a health insurance issuer
offering group health insurance coverage, determines the amount of
creditable
[[Page 16945]]
coverage without regard to the specific benefits included in the
coverage.
(2) Counting creditable coverage--(i) Based on days. For purposes
of reducing the preexisting condition exclusion period, a group health
plan, and a health insurance issuer offering group health insurance
coverage, determines the amount of creditable coverage by counting all
the days that the individual has under one or more types of creditable
coverage. Accordingly, if on a particular day, an individual has
creditable coverage from more than one source, all the creditable
coverage on that day is counted as one day. Further, any days in a
waiting period for a plan or policy are not creditable coverage under
the plan or policy.
(ii) Days not counted before significant break in coverage. Days of
creditable coverage that occur before a significant break in coverage
are not required to be counted.
(iii) Definition of significant break in coverage. A significant
break in coverage means a period of 63 consecutive days during all of
which the individual does not have any creditable coverage, except that
neither a waiting period nor an affiliation period is taken into
account in determining a significant break in coverage. (See section
731(b)(2)(iii) of the Act and section 2723(b)(2)(iii) of the PHSA which
exclude from preemption State insurance laws that require a break of
more than 63 days before an individual has a significant break in
coverage for purposes of State law.)
(iv) Examples. The following examples illustrate how creditable
coverage is counted in reducing preexisting condition exclusion periods
under this paragraph (b)(2):
Example 1. (i) Individual A works for Employer P and has
creditable coverage under Employer P's plan for 18 months before A's
employment terminates. A is hired by Employer Q, and enrolls in
Employer Q's group health plan, 64 days after the last date of
coverage under Employer P's plan. Employer Q's plan has a 12-month
preexisting condition exclusion period.
(ii) In this Example 1, because A had a break in coverage of 63
days, Employer Q's plan may disregard A's prior coverage and A may
be subject to a 12-month preexisting condition exclusion period.
Example 2. (i) Same facts as Example 1, except that A is hired
by Employer Q, and enrolls in Employer Q's plan, on the 63rd day
after the last date of coverage under Employer P's plan.
(ii) In this Example 2, A has a break in coverage of 62 days.
Because A's break in coverage is not a significant break in
coverage, Employer Q's plan must count A's prior creditable coverage
for purposes of reducing the plan's preexisting condition exclusion
period as it applies to A.
Example 3. (i) Same facts as Example 1, except that Employer Q's
plan provides benefits through an insurance policy that, as required
by applicable State insurance laws, defines a significant break in
coverage as 90 days.
(ii) In this Example 3, the issuer that provides group health
insurance to Employer Q's plan must count A's period of creditable
coverage prior to the 63-day break.
Example 4. (i) Same facts as Example 3, except that Employer Q's
plan is a self-insured plan, and, thus, is not subject to State
insurance laws.
(ii) In this Example 4, the plan is not governed by the longer
break rules under State insurance law and A's previous coverage may
be disregarded.
Example 5. (i) Individual B begins employment with Employer R 45
days after terminating coverage under a prior group health plan.
Employer R's plan has a 30-day waiting period before coverage
begins. B enrolls in Employer R's plan when first eligible.
(ii) In this Example 5, B does not have a significant break in
coverage for purposes of determining whether B's prior coverage must
be counted by Employer R's plan. B has only a 44-day break in
coverage because the 30-day waiting period is not taken into account
in determining a significant break in coverage.
Example 6, (i) Individual C works for Employer S and has
creditable coverage under Employer S's plan for 200 days before C's
employment is terminated and coverage ceases. C is then unemployed
for 51 days before being hired by Employer T. Employer T's plan has
a 3-month waiting period. C works for Employer T for 2 months and
then terminates employment. Eleven days after terminating employment
with Employer T, C begins working for Employer U. Employer U's plan
has no waiting period, but has a 6-month preexisting condition
exclusion period.
(ii) In this Example 6, C does not have a significant break in
coverage because, after disregarding the waiting period under
Employer T's plan, C had only a 62-day break in coverage (51 days
plus 11 days). Accordingly, C has 200 days of creditable coverage
and Employer U's plan may not apply its 6-month preexisting
condition exclusion period with respect to C.
Example 7. (i) Individual D terminates employment with Employer
V on January 13, 1998 after being covered for 24 months under
Employer V's group health plan. On March 17, the 63rd day without
coverage, D applies for a health insurance policy in the individual
market. D's application is accepted and the coverage is made
effective May 1.
(ii) In this Example 7, because D applied for the policy before
the end of the 63rd day, and coverage under the policy ultimately
became effective, the period between the date of application and the
first day of coverage is a waiting period and no significant break
in coverage occurred even though the actual period without coverage
was 107 days.
Example 8. (i) Same facts as Example 7, except that D's
application for a policy in the individual market is denied.
(ii) In this Example 8, because D did not obtain coverage
following application, D incurred a significant break in coverage on
the 64th day.
(v) Other permissible counting methods--(A) Rule. Notwithstanding
any other provisions of this paragraph (b)(2), for purposes of reducing
a preexisting condition exclusion period (but not for purposes of
issuing a certificate under Sec. 2590.701-5), a group health plan, and
a health insurance issuer offering group health insurance coverage, may
determine the amount of creditable coverage in any other manner that is
at least as favorable to the individual as the method set forth in this
paragraph (b)(2), subject to the requirements of other applicable law.
(B) Example. The rule of this paragraph (b)(2)(v) is illustrated by
the following example:
Example. (i) Individual F has coverage under group health plan Y
from January 3, 1997 through March 25, 1997. F then becomes covered
by group health plan Z. F's enrollment date in Plan Z is May 1,
1997. Plan Z has a 12-month preexisting condition exclusion period.
(ii) In this Example, Plan Z may determine, in accordance with
the rules prescribed in paragraph (b)(2) (i), (ii), and (iii) of
this section, that F has 82 days of creditable coverage (29 days in
January, 28 days in February, and 25 days in March). Thus, the
preexisting condition exclusion period will no longer apply to F on
February 8, 1998 (82 days before the 12-month anniversary of F's
enrollment (May 1)). For administrative convenience, however, Plan Z
may consider that the preexisting condition exclusion period will no
longer apply to F on the first day of the month (February 1).
(c) Alternative method--(1) Specific benefits considered. Under the
alternative method, a group health plan, or a health insurance issuer
offering group health insurance coverage, determines the amount of
creditable coverage based on coverage within any category of benefits
described in paragraph (c)(3) of this section and not based on coverage
for any other benefits. The plan or issuer may use the alternative
method for any or all of the categories. The plan may apply a different
preexisting condition exclusion period with respect to each category
(and may apply a different preexisting condition exclusion period for
benefits that are not within any category). The creditable coverage
determined for a category of benefits applies only for purposes of
reducing the preexisting condition exclusion period with respect to
that category. An individual's creditable coverage for benefits that
are not within any category for which the alternative method is being
used is determined under the
[[Page 16946]]
standard method of paragraph (b) of this section.
(2) Uniform application. A plan or issuer using the alternative
method is required to apply it uniformly to all participants and
beneficiaries under the plan or policy. The use of the alternative
method is required to be set forth in the plan.
(3) Categories of benefits. The alternative method for counting
creditable coverage may be used for coverage for the following
categories of benefits--
(i) Mental health;
(ii) Substance abuse treatment;
(iii) Prescription drugs;
(iv) Dental care; or
(v) Vision care.
(4) Plan notice. If the alternative method is used, the plan is
required to--
(i) State prominently that the plan is using the alternative method
of counting creditable coverage in disclosure statements concerning the
plan, and state this to each enrollee at the time of enrollment under
the plan; and
(ii) Include in these statements a description of the effect of
using the alternative method, including an identification of the
categories used.
(5) Disclosure of information on previous benefits. See
Sec. 2590.701-5(b) for special rules concerning disclosure of coverage
to a plan, or issuer, using the alternative method of counting
creditable coverage under this paragraph (c).
(6) Counting creditable coverage--(i) In general. Under the
alternative method, the group health plan or issuer counts creditable
coverage within a category if any level of benefits is provided within
the category. Coverage under a reimbursement account or arrangement,
such as a flexible spending arrangement (as defined in section
106(c)(2) of the Internal Revenue Code), does not constitute coverage
within any category.
(ii) Special rules. In counting an individual's creditable coverage
under the alternative method, the group health plan, or issuer, first
determines the amount of the individual's creditable coverage that may
be counted under paragraph (b) of this section, up to a total of 365
days of the most recent creditable coverage (546 days for a late
enrollee). The period over which this creditable coverage is determined
is referred to as the determination period. Then, for the category
specified under the alternative method, the plan or issuer counts
within the category all days of coverage that occurred during the
determination period (whether or not a significant break in coverage
for that category occurs), and reduces the individual's preexisting
condition exclusion period for that category by that number of days.
The plan or issuer may determine the amount of creditable coverage in
any other reasonable manner, uniformly applied, that is at least as
favorable to the individual.
(iii) Example. The rules of this paragraph (c)(6) are illustrated
by the following example:
Example. (i) Individual D enrolls in Employer V's plan on
January 1, 2001. Coverage under the plan includes prescription drug
benefits. On April 1, 2001, the plan ceases providing prescription
drug benefits. D's employment with Employer V ends on January 1,
2002, after D was covered under Employer V's group health plan for
365 days. D enrolls in Employer Y's plan on February 1, 2002 (D's
enrollment date). Employer Y's plan uses the alternative method of
counting creditable coverage and imposes a 12-month preexisting
condition exclusion on prescription drug benefits.
(ii) In this Example, Employer Y's plan may impose a 275-day
preexisting condition exclusion with respect to D for prescription
drug benefits because D had 90 days of creditable coverage relating
to prescription drug benefits within D's determination period.
Sec. 2590.701-5 Certification and disclosure of previous coverage.
(a) Certificate of creditable coverage--(1) Entities required to
provide certificate--(i) In general. A group health plan, and each
health insurance issuer offering group health insurance coverage under
a group health plan, is required to furnish certificates of creditable
coverage in accordance with this paragraph (a) of this section.
(ii) Duplicate certificates not required. An entity required to
provide a certificate under this paragraph (a)(1) for an individual is
deemed to have satisfied the certification requirements for that
individual if another party provides the certificate, but only to the
extent that information relating to the individual's creditable
coverage and waiting or affiliation period is provided by the other
party. For example, in the case of a group health plan funded through
an insurance policy, the issuer is deemed to have satisfied the
certification requirement with respect to a participant or beneficiary
if the plan actually provides a certificate that includes the
information required under paragraph (a)(3) of this section with
respect to the participant or beneficiary.
(iii) Special rule for group health plans. To the extent coverage
under a plan consists of group health insurance coverage, the plan is
deemed to have satisfied the certification requirements under this
paragraph (a)(1) if any issuer offering the coverage is required to
provide the certificates pursuant to an agreement between the plan and
the issuer. For example, if there is an agreement between an issuer and
the plan sponsor under which the issuer agrees to provide certificates
for individuals covered under the plan, and the issuer fails to provide
a certificate to an individual when the plan would have been required
to provide one under this paragraph (a), then the issuer, but not the
plan, violates the certification requirements of this paragraph (a).
(iv) Special rules for issuers--(A)(1) Responsibility of issuer for
coverage period. An issuer is not required to provide information
regarding coverage provided to an individual by another party.
(2) Example. The rule of this paragraph (a)(1)(iv)(A) is
illustrated by the following example:
Example. (i) A plan offers coverage with an HMO option from one
issuer and an indemnity option from a different issuer. The HMO has
not entered into an agreement with the plan to provide certificates
as permitted under paragraph (a)(1)(iii) of this section.
(ii) In this Example, if an employee switches from the indemnity
option to the HMO option and later ceases to be covered under the
plan, any certificate provided by the HMO is not required to provide
information regarding the employee's coverage under the indemnity
option.
(B)(1) Cessation of issuer coverage prior to cessation of coverage
under a plan. If an individual's coverage under an issuer's policy
ceases before the individual's coverage under the plan ceases, the
issuer is required to provide sufficient information to the plan (or to
another party designated by the plan) to enable a certificate to be
provided by the plan (or other party), after cessation of the
individual's coverage under the plan, that reflects the period of
coverage under the policy. The provision of that information to the
plan will satisfy the issuer's obligation to provide an automatic
certificate for that period of creditable coverage for the individual
under paragraph (a) (2)(ii) and (3) of this section. In addition, an
issuer providing that information is required to cooperate with the
plan in responding to any request made under paragraph (b)(2) of this
section (relating to the alternative method of counting creditable
coverage). If the individual's coverage under the plan ceases at the
time the individual's coverage under the issuer's policy ceases, the
issuer must provide an automatic certificate under paragraph (a)(2)(ii)
of this section. An issuer may presume that an individual whose
coverage ceases at a time other than the effective date for changing
enrollment
[[Page 16947]]
options has ceased to be covered under the plan.
(2) Example. The rule of this paragraph (a)(1)(iv)(B) is
illustrated by the following example.
Example. (i) A group health plan provides coverage under an HMO
option and an indemnity option with a different issuer, and only
allows employees to switch on each January 1. Neither the HMO nor
the indemnity issuer has entered into an agreement with the plan to
provide automatic certificates as permitted under paragraph
(a)(2)(ii) of this section.
(ii) In this Example, if an employee switches from the indemnity
option to the HMO option on January 1, the issuer must provide the
plan (or a person designated by the plan) with appropriate
information with respect to the individual's coverage with the
indemnity issuer. However, if the individual's coverage with the
indemnity issuer ceases at a date other than January 1, the issuer
is instead required to provide the individual with an automatic
certificate.
(2) Individuals for whom certificate must be provided; timing of
issuance--(i) Individuals. A certificate must be provided, without
charge, for participants or dependents who are or were covered under a
group health plan upon the occurrence of any of the events described in
paragraph (a)(2)(ii) or (iii) of this section.
(ii) Issuance of automatic certificates. The certificates described
in this paragraph (a)(2)(ii) are referred to as automatic certificates.
(A) Qualified beneficiaries upon a qualifying event. In the case of
an individual who is a qualified beneficiary (as defined in section
607(3) of the Act) entitled to elect COBRA continuation coverage, an
automatic certificate is required to be provided at the time the
individual would lose coverage under the plan in the absence of COBRA
continuation coverage or alternative coverage elected instead of COBRA
continuation coverage. A plan or issuer satisfies this requirement if
it provides the automatic certificate no later than the time a notice
is required to be furnished for a qualifying event under section 606 of
the Act (relating to notices required under COBRA).
(B) Other individuals when coverage ceases. In the case of an
individual who is not a qualified beneficiary entitled to elect COBRA
continuation coverage, an automatic certificate is required to be
provided at the time the individual ceases to be covered under the
plan. A plan or issuer satisfies this requirement if it provides the
automatic certificate within a reasonable time period thereafter. In
the case of an individual who is entitled to elect to continue coverage
under a State program similar to COBRA and who receives the automatic
certificate not later than the time a notice is required to be
furnished under the State program, the certificate is deemed to be
provided within a reasonable time period after the cessation of
coverage under the plan.
(C) Qualified beneficiaries when COBRA ceases. In the case of an
individual who is a qualified beneficiary and has elected COBRA
continuation coverage (or whose coverage has continued after the
individual became entitled to elect COBRA continuation coverage), an
automatic certificate is to be provided at the time the individual's
coverage under the plan ceases. A plan, or issuer, satisfies this
requirement if it provides the automatic certificate within a
reasonable time after coverage ceases (or after the expiration of any
grace period for nonpayment of premiums). An automatic certificate is
required to be provided to such an individual regardless of whether the
individual has previously received an automatic certificate under
paragraph (a)(2)(ii)(A) of this section.
(iii) Any individual upon request. Requests for certificates are
permitted to be made by, or on behalf of, an individual within 24
months after coverage ceases. Thus, for example, a plan in which an
individual enrolls may, if authorized by the individual, request a
certificate of the individual's creditable coverage on behalf of the
individual from a plan in which the individual was formerly enrolled.
After the request is received, a plan or issuer is required to provide
the certificate by the earliest date that the plan or issuer, acting in
a reasonable and prompt fashion, can provide the certificate. A
certificate is required to be provided under this paragraph (a)(2)(iii)
even if the individual has previously received a certificate under this
paragraph (a)(2)(iii) or an automatic certificate under paragraph
(a)(2)(ii) of this section.
(iv) Examples. The following examples illustrate the rules of this
paragraph (a)(2):
Example 1. (i) Individual A terminates employment with Employer
Q. A is a qualified beneficiary entitled to elect COBRA continuation
coverage under Employer Q's group health plan. A notice of the
rights provided under COBRA is typically furnished to qualified
beneficiaries under the plan within 10 days after a covered employee
terminates employment.
(ii) In this Example 1, the automatic certificate may be
provided at the same time that A is provided the COBRA notice.
Example 2. (i) Same facts as Example 1, except that the
automatic certificate for A is not completed by the time the COBRA
notice is furnished to A.
(ii) In this Example 2, the automatic certificate may be
provided within the period permitted by law for the delivery of
notices under COBRA.
Example 3. (i) Employer R maintains an insured group health
plan. R has never had 20 employees and thus R's plan is not subject
to the COBRA continuation coverage provisions. However, R is in a
State that has a State program similar to COBRA. B terminates
employment with R and loses coverage under R's plan.
(ii) In this Example 3, the automatic certificate may be
provided not later than the time a notice is required to be
furnished under the State program.
Example 4. (i) Individual C terminates employment with Employer
S and receives both a notice of C's rights under COBRA and an
automatic certificate. C elects COBRA continuation coverage under
Employer S's group health plan. After four months of COBRA
continuation coverage and the expiration of a 30-day grace period,
S's group health plan determines that C's COBRA continuation
coverage has ceased due to failure to make a timely payment for
continuation coverage.
(ii) In this Example 4, the plan must provide an updated
automatic certificate to C within a reasonable time after the end of
the grace period.
Example 5. (i) Individual D is currently covered under the group
health plan of Employer T. D requests a certificate, as permitted
under paragraph (a)(2)(iii) of this section. Under the procedure for
Employer T's plan, certificates are mailed (by first class mail) 7
business days following receipt of the request. This date reflects
the earliest date that the plan, acting in a reasonable and prompt
fashion, can provide certificates.
(ii) In this Example 5, the plan's procedure satisfies paragraph
(a)(2)(iii) of this section.
(3) Form and content of certificate-- (i) Written certificate--(A)
In general. Except as provided in paragraph (a)(3)(i)(B) of this
section, the certificate must be provided in writing (including any
form approved by the Secretary as a writing).
(B) Other permissible forms. No written certificate is required to
be provided under this paragraph (a) with respect to a particular event
described in paragraph (a)(2) (ii) or (iii) of this section, if--
(1) An individual is entitled to receive a certificate;
(2) The individual requests that the certificate be sent to another
plan or issuer instead of to the individual;
(3) The plan or issuer that would otherwise receive the certificate
agrees to accept the information in this paragraph (a)(3) through means
other than a written certificate (e.g., by telephone); and
(4) The receiving plan or issuer receives such information from the
sending plan or issuer in such form within the time periods required
under paragraph (a)(2) of this section.
[[Page 16948]]
(ii) Required information. The certificate must include the
following--
(A) The date the certificate is issued;
(B) The name of the group health plan that provided the coverage
described in the certificate;
(C) The name of the participant or dependent with respect to whom
the certificate applies, and any other information necessary for the
plan providing the coverage specified in the certificate to identify
the individual, such as the individual's identification number under
the plan and the name of the participant if the certificate is for (or
includes) a dependent;
(D) The name, address, and telephone number of the plan
administrator or issuer required to provide the certificate;
(E) The telephone number to call for further information regarding
the certificate (if different from paragraph (a)(3)(ii)(D) of this
section);
(F) Either--
(1) A statement that an individual has at least 18 months (for this
purpose, 546 days is deemed to be 18 months) of creditable coverage,
disregarding days of creditable coverage before a significant break in
coverage, or
(2) The date any waiting period (and affiliation period, if
applicable) began and the date creditable coverage began; and
(G) The date creditable coverage ended, unless the certificate
indicates that creditable coverage is continuing as of the date of the
certificate.
(iii) Periods of coverage under certificate. If an automatic
certificate is provided pursuant to paragraph (a)(2)(ii) of this
section, the period that must be included on the certificate is the
last period of continuous coverage ending on the date coverage ceased.
If an individual requests a certificate pursuant to paragraph
(a)(2)(iii) of this section, a certificate must be provided for each
period of continuous coverage ending within the 24-month period ending
on the date of the request (or continuing on the date of the request).
A separate certificate may be provided for each such period of
continuous coverage.
(iv) Combining information for families. A certificate may provide
information with respect to both a participant and the participant's
dependents if the information is identical for each individual or, if
the information is not identical, certificates may be provided on one
form if the form provides all the required information for each
individual and separately states the information that is not identical.
(v) Model certificate. The requirements of paragraph (a)(3)(ii) of
this section are satisfied if the plan or issuer provides a certificate
in accordance with a model certificate authorized by the Secretary.
(vi) Excepted benefits; categories of benefits. No certificate is
required to be furnished with respect to excepted benefits described in
Sec. 2590.732. In addition, the information in the certificate
regarding coverage is not required to specify categories of benefits
described in Sec. 2590.701-4(c) (relating to the alternative method of
counting creditable coverage). However, if excepted benefits are
provided concurrently with other creditable coverage (so that the
coverage does not consist solely of excepted benefits), information
concerning the benefits may be required to be disclosed under paragraph
(b) of this section.
(4) Procedures--(i) Method of delivery. The certificate is required
to be provided to each individual described in paragraph (a)(2) of this
section or an entity requesting the certificate on behalf of the
individual. The certificate may be provided by first-class mail. If the
certificate or certificates are provided to the participant and the
participant's spouse at the participant's last known address, then the
requirements of this paragraph (a)(4) are satisfied with respect to all
individuals residing at that address. If a dependent's last known
address is different than the participant's last known address, a
separate certificate is required to be provided to the dependent at the
dependent's last known address. If separate certificates are being
provided by mail to individuals who reside at the same address,
separate mailings of each certificate are not required.
(ii) Procedure for requesting certificates. A plan or issuer must
establish a procedure for individuals to request and receive
certificates pursuant to paragraph (a)(2)(iii) of this section.
(iii) Designated recipients. If an automatic certificate is
required to be provided under paragraph (a)(2)(ii) of this section, and
the individual entitled to receive the certificate designates another
individual or entity to receive the certificate, the plan or issuer
responsible for providing the certificate is permitted to provide the
certificate to the designated party. If a certificate is required to be
provided upon request under paragraph (a)(2)(iii) of this section and
the individual entitled to receive the certificate designates another
individual or entity to receive the certificate, the plan or issuer
responsible for providing the certificate is required to provide the
certificate to the designated party.
(5) Special rules concerning dependent coverage--(i)(A) Reasonable
efforts. A plan or issuer is required to use reasonable efforts to
determine any information needed for a certificate relating to the
dependent coverage. In any case in which an automatic certificate is
required to be furnished with respect to a dependent under paragraph
(a)(2)(ii) of this section, no individual certificate is required to be
furnished until the plan or issuer knows (or making reasonable efforts
should know) of the dependent's cessation of coverage under the plan.
(B) Example. The rules of this paragraph (a)(5) are illustrated by
the following example:
Example. (i) A group health plan covers employees and their
dependents. The plan annually requests all employees to provide
updated information regarding dependents, including the specific
date on which an employee has a new dependent or on which a person
ceases to be a dependent of the employee.
(ii) In this Example, the plan has satisfied the standard in
this paragraph (a)(5)(i) of this section that it make reasonable
efforts to determine the cessation of dependents' coverage and the
related dependent coverage information.
(ii) Special rules for demonstrating coverage. If a certificate
furnished by a plan or issuer does not provide the name of any
dependent of an individual covered by the certificate, the individual
may, if necessary, use the procedures described in paragraph (c)(4) of
this section for demonstrating dependent status. In addition, an
individual may, if necessary, use these procedures to demonstrate that
a child was enrolled within 30 days of birth, adoption, or placement
for adoption. See Sec. 2590.701-3(b), under which such a child would
not be subject to a preexisting condition exclusion.
(iii) Transaction rule for dependent coverage through June 30,
1998--(A) In general. A group health plan or health insurance issuer
that cannot provide the names of dependents (or related coverage
information) for purposes of providing a certificate of coverage for a
dependent may satisfy the requirements of paragraph (a)(3)(ii)(C) of
this section by providing the name of the participant covered by the
group health plan or health insurance issuer and specifying that the
type of coverage described in the certificate is for dependent coverage
(e.g., family coverage or employee-plus-spouse coverage).
(B) Certificates provided on request. For purposes of certificates
provided on the request of, or on behalf of, an individual pursuant to
paragraph (a)(2)(iii) of this section, a plan or issuer
[[Page 16949]]
must make reasonable efforts to obtain and provide the names of any
dependent covered by the certificate where such information is
requested to be provided. If a certificate does not include the name of
any dependent of an individual covered by the certificate, the
individual may, if necessary, use the procedures described in paragraph
(c) of this section for submitting documentation to establish that the
creditable coverage in the certificate applies to the dependent.
(C) Demonstrating a dependent's creditable coverage. See paragraph
(c)(4) of this section for special rules to demonstrate dependent
status.
(D) Duration. This paragraph (a)(5)(iii) is only effective for
certificates provided with respect to events occurring through June 30,
1998.
(6) Special certification rules for entities not subject to Part 7
of Subtitle B of Title I of the Act--(i) Issuers. For special rules
requiring that issuers, not subject to part 7 of subtitle B of title I
of the Act, provide certificates consistent with the rules in this
section, including issuers offering coverage with respect to creditable
coverage described in sections 701(c)(1)(G) through (c)(1)(J) of the
Act (coverage under a State health benefits risk pool, the Federal
Employees Health Benefits Program, a public health plan, and a health
benefit plan under section 5(e) of the Peace Corps Act), see section
2721(b)(1)(B) of the PHSA (requiring certificates by issuers offering
health insurance covering in connection with a group health plan,
including a church plan or a governmental plan (including the Federal
Employees Health Benefits Program (FEHBP)). In addition, see section
2743 of the PHSA applicable to health insurance issuers in the
individual market. (However, this section does not require a
certificate to be provided with respect to short-term limited duration
insurance, as described in the definition of individual health
insurance coverage in Sec. 2590.701-2, that is not provided by a group
health plan or issuer offering health insurance in connection with a
group health plan.)
(ii) Other entities. For special rules requiring that certain other
entities, not subject to part 7 of subtitle B of title I of the Act,
provide certificates consistent with the rules in this section, see
section 2791(a)(3) of the PHSA applicable to entities described in
sections 2701(c)(1)(C), (D), (E), and (F) of PHSA (relating to
Medicare, Medicaid, CHAMPUS, and Indian Health Service), section
2721(b)(1)(A) of the PHSA applicable to nonfederal governmental plans
generally, section 2721(b)(2)(C)(ii) of the PHSA applicable to
nonfederal governmental plans that elect to be excluded from the
requirements of subparts 1 and 3 of part A of Title XXVII of the PHSA,
and section 9805(a) of the Internal Revenue Code applicable to group
health plans, which includes church plans (as defined in section 414(e)
of the Internal Revenue Code).
(b) Disclosure of coverage to a plan, or issuer, using the
alternative method of counting creditable coverage--(1) In general. If
an individual enrolls in a group health plan with respect to which the
plan, or issuer, uses the alternative method of counting creditable
coverage described in Sec. 2590.701-4(c) the individual provides a
certificate of coverage under paragraph (a) of this section, and the
plan or issuer in which the individual enrolls so requests, the entity
that issued the certificate (the prior entity) is required to disclose
promptly to a requesting plan or issuer (the requesting entity) the
information set forth in paragraph (b)(2) of this section.
(2) Information to be disclosed. Information to be disclosed. The
prior entity is required to identify to the requesting entity the
categories of benefits with respect to which the requesting entity is
using the alternative method of counting creditable coverage, and the
requesting entity may identify specific information that the requesting
entity reasonably needs in order to determine the individual's
creditable coverage with respect to any such category. The prior entity
is required to disclose promptly to the requesting entity the
creditable coverage information so requested.
(3) Charge for providing information. The prior entity furnishing
the information under paragraph (b) of this section may charge the
requesting entity for the reasonable cost of disclosing such
information.
(c) Ability of an individual to demonstrate creditable coverage and
waiting period information--(1) In general. The rules in this paragraph
(c) implement section 701(c)(4) of the Act, which permits individuals
to establish creditable coverage through means other than certificates,
and section 701(e)(3) of the Act, which requires the Secretary to
establish rules designed to prevent an individual's subsequent coverage
under a group health plan or health insurance coverage from being
adversely affected by an entity's failure to provide a certificate with
respect to that individual. If the accuracy of a certificate is
contested or a certificate is unavailable when needed by the
individual, the individual has the right to demonstrate creditable
coverage (and waiting or affiliation periods) through the presentation
of documents or other means. For example, the individual may make such
a demonstration when--
(i) An entity has failed to provide a certificate within the
required time period;
(ii) The individual has creditable coverage but an entity may not
be required to provide a certificate of the coverage pursuant to
paragraph (a) of this section;
(iii) The coverage is for a period before July 1, 1996;
(iv) The individual has an urgent medical condition that
necessitates a determination before the individual can deliver a
certificate to the plan; or
(v) The individual lost a certificate that the individual had
previously received and is unable to obtain another certificate.
(2) Evidence of creditable coverage--(i) Consideration of evidence.
A plan or issuer is required to take into account all information that
it obtains or that is presented on behalf of an individual to make a
determination, based on the relevant facts and circumstances, whether
an individual has creditable coverage and is entitled to offset all or
a portion of any preexisting condition exclusion period. A plan or
issuer shall treat the individual as having furnished a certificate
under paragraph (a) of this section if the individual attests to the
period of creditable coverage, the individual also presents relevant
corroborating evidence of some creditable coverage during the period,
and the individual cooperates with the plan's or issuer's efforts to
verify the individual's coverage. For this purpose, cooperation
includes providing (upon the plan's or issuer's request) a written
authorization for the plan or issuer to request a certificate on behalf
of the individual, and cooperating in efforts to determine the validity
of the corroborating evidence and the dates of creditable coverage.
While a plan or issuer may refuse to credit coverage where the
individual fails to cooperate with the plan's or issuer's efforts to
verify coverage, the plan or issuer may not consider an individual's
inability to obtain a certificate to be evidence of the absence of
creditable coverage.
(ii) Documents. Documents that may establish creditable coverage
(and waiting periods or affiliation periods) in the absence of a
certificate include explanations of benefit claims (EOB) or other
correspondence from a plan or issuer indicating coverage, pay stubs
showing a payroll deduction for health coverage, a health insurance
identification card, a certificate of coverage under a group health
policy,
[[Page 16950]]
records from medical care providers indicating health coverage, third
party statements verifying periods of coverage, and any other relevant
documents that evidence periods of health coverage.
(iii) Other evidence. Creditable coverage (and waiting period or
affiliation period information) may also be established through means
other than documentation, such as by a telephone call from the plan or
provider to a third party verifying creditable coverage.
(iv) Example. The rules of this paragraph (c)(2) are illustrated by
the following example:
Example. (i) Individual F terminates employment with Employer W
and, a month later, is hired by Employer X. Employer X's group
health plan imposes a preexisting condition exclusion of 12 months
on new enrollees under the plan and uses the standard method of
determining creditable coverage. F fails to receive a certificate of
prior coverage from the self-insured group health plan maintained by
F's prior employer, Employer W, and requests a certificate. However,
F (and Employer X's plan, on F's behalf) is unable to obtain a
certificate from Employer W's plan. F attests that, to the best of
F's knowledge, F had at least 12 months of continuous coverage under
Employer W's plan, and that the coverage ended no earlier than F's
termination of employment from Employer W. In addition, F presents
evidence of coverage, such as an explanation of benefits for a claim
that was made during the relevant period.
(ii) In this Example, based solely on these facts, F has
demonstrated creditable coverage for the 12 months of coverage under
Employer W's plan in the same manner as if F had presented a written
certificate of creditable coverage.
(3) Demonstrating categories of creditable coverage. Procedures
similar to those described in this paragraph (c) apply in order to
determine an individual's creditable coverage with respect to any
category under paragraph (b) of this section (relating to determining
creditable coverage under the alternative method).
(4) Demonstrating dependent status. If, in the course of providing
evidence (including a certificate) of creditable coverage, an
individual is required to demonstrate dependent status, the group
health plan or issuer is required to treat the individual as having
furnished a certificate showing the dependent status if the individual
attests to such dependency and the period of such status and the
individual cooperates with the plan's or issuer's efforts to verify the
dependent status.
(d) Determination and notification of creditable coverage--(1)
Resonable time period. In the event that a group health plan or health
insurance issuer offering group health insurance coverage receives
information under paragraph (a) of this section (certifications),
paragraph (b) of this section (disclosure of information relating to
the alternative method), or paragraph (c) of this section (other
evidence of creditable coverage), the entity is required, within a
reasonable time period following receipt of the information, to make a
determination regarding the individual's period of creditable coverage
and notify the individual of the determination in accordance with
paragraph (d)(2) of this section. Whether a determination and
notification regarding an individual's creditable coverage is made
within a reasonable time period is determined based on the relevant
facts and circumstances. Relevant facts and circumstances include
whether a plan's application of a preexisting condition exclusion would
prevent an individual from having access to urgent medical services.
(2) Notification to individual of period of preexisting condition
exclusion. A plan or issuer seeking to impose a preexisting condition
exclusion is required to disclose to the individual, in writing, its
determination of any preexisting condition exclusion period that
applies to the individual, and the basis for such determination,
including the source and substance of any information on which the plan
or issuer relied. In addition, the plan or issuer is required to
provide the individual with a written explanation of any appeal
procedures established by the plan or issuer, and with a reasonable
opportunity to submit additional evidence of creditable coverage.
However, nothing in this paragraph (d) or paragraph (c) of this section
prevents a plan or issuer from modifying an initial determination of
creditable coverage if it determines that the individual did not have
the claimed creditable coverage, provided that--
(i) A notice of such reconsideration, as described in this
paragraph (d), is provided to the individual; and
(ii) Until the final determination is made, the plan or issuer, for
purposes of approving access to medical services (such as a pre-surgery
authorization), acts in a manner consistent with the initial
determination.
(3) Examples. The following examples illustrate this paragraph (d):
Example 1. (i) Individual G is hired by Employer Y. Employer Y's
group health plan imposes a preexisting condition exclusion for 12
months with respect to new enrollees and uses the standard method of
determining creditable coverage. Employer Y's plan determines that G
is subject to a 4-month preexisting condition exclusion, based on a
certificate of creditable coverage that is provided by G to Employer
Y's plan indicating 8 months of coverage under G's prior group
health plan.
(ii) In this Example 1, Employer Y's plan must notify G within a
reasonable period of time following receipt of the certificate that
G is subject to a 4-month preexisting condition exclusion beginning
on G's enrollment date in Y's plan.
Example 2. (i) Same facts as in Example 1, except that Employer
Y's plan determines that G has 14 months of creditable coverage
based on G's certificate indicating 14 months of creditable coverage
under G's prior plan.
(ii) In this Example 2, Employer Y's plan is not required to
notify G that G will not be subject to a preexisting condition
exclusion.
Example 3. (i) Individual H is hired by Employer Z. Employer Z's
group health plan imposes a preexisting condition exclusion for 12
months with respect to new enrollees and uses the standard method of
determining creditable coverage. H develops an urgent health
condition before receiving a certificate of prior coverage. H
attests to the period of prior coverage, presents corroborating
documentation of the coverage period, and authorizes the plan to
request a certificate on H's behalf.
(ii) In this Example 3, Employer Z's plan must review the
evidence presented by H. In addition, the plan must make a
determination and notify H regarding any preexisting condition
exclusion period that applies to H (and the basis of such
determination) within a reasonable time period following receipt of
the evidence that is consistent with the urgency of H's health
condition (this determination may be modified as permitted under
paragraph (d)(2) of this section).
Sec. 2590.701-6 Special enrollment periods.
(a) Special enrollment for certain individuals who lose coverage--
(1) In general. A group health plan, and a health insurance issuer
offering group health insurance coverage in connection with a group
health plan, is required to permit employees and dependents described
in paragraph (a) (2), (3), or (4) of this section to enroll for
coverage under the terms of the plan if the conditions in paragraph
(a)(5) of this section are satisfied and the enrollment is requested
within the period described in paragraph (a)(6) of this section. The
enrollment is effective at the time described in paragraph (a)(7) of
this section. The special enrollment rights under this paragraph (a)
apply without regard to the dates on which an individual would
otherwise be able to enroll under the plan.
(2) Special enrollment of an employee only. An employee is
described in this paragraph (a)(2) if the employee is eligible, but not
enrolled, for coverage under the terms of the plan and, when enrollment
was previously offered to the employee under the plan and was declined
by the employee, the employee
[[Page 16951]]
was covered under another group health plan or had other health
insurance coverage.
(3) Special enrollment of dependents only. A dependent is described
in this paragraph (a)(3) if the dependent is a dependent of an employee
participating in the plan, the dependent is eligible, but not enrolled,
for coverage under the terms of the plan, and, when enrollment was
previously offered under the plan and was declined, the dependent was
covered under another group health plan or had other health insurance
coverage.
(4) Special enrollment of both employee and dependent. An employee
and any dependent of the employee are described in this paragraph
(a)(4) if they are eligible, but not enrolled, for coverage under the
terms of the plan and, when enrollment was previously offered to the
employee or dependent under the plan and was declined, the employee or
dependent was covered under another group health plan or had other
health insurance coverage.
(5) Conditions for special enrollment. An employee or dependent is
eligible to enroll during a special enrollment period if each of the
following applicable conditions is met:
(i) When the employee declined enrollment for the employee or the
dependent, the employee stated in writing that coverage under another
group health plan or other health insurance coverage was the reason for
declining enrollment. This paragraph (a)(5)(i) applies only if--
(A) The plan required such a statement when the employee declined
enrollment; and
(B) The employee is provided with notice of the requirement to
provide the statement in this paragraph (a)(5)(i) (and the consequences
of the employee's failure to provide the statement) at the time the
employee declined enrollment.
(ii)(A) When the employee declined enrollment for the employee or
dependent under the plan, the employee or dependent had COBRA
continuation coverage under another plan and COBRA continuation
coverage under that other plan has since been exhausted; or
(B) If the other coverage that applied to the employee or dependent
when enrollment was declined was not under a COBRA continuation
provision, either the other coverage has been terminated as a result of
loss of eligibility for the coverage or employer contributions towards
the other coverage has been terminated. For this purpose, loss of
eligibility for coverage includes a loss of coverage as a result of
legal separation, divorce, death, termination of employment, reduction
in the number of hours of employment, and any loss of eligibility after
a period that is measured by reference to any of the foregoing. Thus,
for example, if an employee's coverage ceases following a termination
of employment and the employee is eligible for but fails to elect COBRA
continuation coverage, this is treated as a loss of eligibility under
this paragraph (a)(5)(ii)(B). However, loss of eligibility does not
include a loss due to failure of the individual or the participant to
pay premiums on a timely basis or termination of coverage for cause
(such as making a fraudulent claim or an intentional misrepresentation
of a material fact in connection with the plan). In addition, for
purposes of this paragraph (a)(5)(ii)(B), employer contributions
include contributions by any current or former employer (of the
individual or another person) that was contributing to coverage for the
individual.
(6) Length of special enrollment period. The employee is required
to request enrollment (for the employee or the employee's dependent, as
described in paragraph (a) (2), (3), or (4) of this section) not later
than 30 days after the exhaustion of the other coverage described in
paragraph (a)(5)(ii)(A) of this section or termination of the other
coverage as a result of the loss of eligibility for the other coverage
for items described in paragraph (a)(5)(ii)(B) of this section or
following the termination of employer contributions toward that other
coverage. The plan may impose the same requirements that apply to
employees who are otherwise eligible under the plan to immediately
request enrollment for coverage (e.g., that the request be made in
writing).
(7) Effective date of enrollment. Enrollment is effective not later
than the first day of the first calendar month beginning after the date
the completed request for enrollment is received.
(b) Special enrollment with respect to certain dependent
beneficiaries--(1) In general. A group health plan that makes coverage
available with respect to dependents of a participant is required to
provide a special enrollment period to permit individuals described in
paragraph (b) (2), (3), (4), (5), or (6) of this section to be enrolled
for coverage under the terms of the plan if the enrollment is requested
within the time period described in paragraph (b)(7) of this section.
The enrollment is effective at the time described in paragraph (b)(8)
of this section. The special enrollment rights under this paragraph (b)
apply without regard to the dates on which an individual would
otherwise be able to enroll under the plan.
(2) Special enrollment of an employee who is eligible but not
enrolled. An individual is described in this paragraph (b)(2) if the
individual is an employee who is eligible, but not enrolled, in the
plan, the individual would be a participant but for a prior election by
the individual not to enroll in the plan during a previous enrollment
period, and a person becomes a dependent of the individual through
marriage, birth, or adoption or placement for adoption.
(3) Specil enrollment of a spouse of a participant. An individual
is described in this paragraph (b)(3) if either--
(i) The individual becomes the spouse of a participant; or
(ii) The individual is a spouse of the participant and a child
becomes a dependent of the participant through birth, adoption or
placement for adoption.
(4) Special enrollment of an employee who is eligible but not
enrolled and the spouse of such employee. An employee who is eligible,
but not enrolled, in the plan, and an individual who is a dependent of
such employee, are described in this paragraph (b)(4) if the employee
would be a participant but for a prior election by the employee not to
enroll in the plan during a previous enrollment period, and either--
(i) The employee and the individual become married; or
(ii) The employee and individual are married and a child becomes a
dependent of the employee through birth, adoption or placement for
adoption.
(5) Special enrollment of a dependent of a participant. An
individual is described in this paragraph (b)(5) if the individual is a
dependent of a participant and the individual becomes a dependent of
such participant through marriage, birth, or adoption or placement for
adoption.
(6) Sepcial enrollment of an employee who is eligible but not
enrolled and a new dependent. An employee who is eligible, but not
enrolled, in the plan, and an individual who is a dependent of the
employee, are described in this paragraph (b)(6) if the employee would
be a participant but for a prior election by the employee not to enroll
in the plan during a previous enrollment period, and the dependent
becomes a dependent of the employee through marriage, birth, or
adoption or placement for adoption.
(7) Length of special enrollment period. The special enrollment
period under paragraph (b)(1) of this section is a period of not less
than 30 days and begins on the date of the marriage, birth, or adoption
or placement for adoption
[[Page 16952]]
(except that such period does not begin earlier than the date the plan
makes dependent coverage generally available).
(8) Effective date of enrollment. Enrollment is effective--
(i) In the case of marriage, not later than the first day of the
first calendar month beginning after the date the completed request for
enrollment is received by the plan;
(ii) In the case of a dependent's birth, the date of such birth;
and
(iii) In the case of a dependent's adoption or placement for
adoption, the date of such adoption or placement for adoption.
(9) Example. The rules of this paragraph (b) are illustrated by the
following example:
Example. (i) Employee A is hired on September 3, 1998 by
Employer X, which has a group health plan in which A can elect to
enroll either for employee-only coverage, for employee-plus-spouse
coverage, or for family coverage, effective on the first day of any
calendar quarter thereafter. A is married and has no children. A
does not elect to join Employer X's plan (for employee-only
coverage, employee-plus-spouse coverage, or family coverage) on
October 1, 1998 or January 1, 1999. On February 15, 1999, a child is
placed for adoption with A and A's spouse.
(ii) In this Example, the conditions for special enrollment of
an employee with a new dependent under paragraph (b)(2) of this
section are satisfied, the conditions for special enrollment of an
employee and a spouse with a new dependent under paragraph (b)(4) of
this section are satisfied, and the conditions for special
enrollment of an employee and a new dependent under paragraph (b)(6)
of this section are satisfied. Accordingly, Employer X's plan will
satisfy this paragraph (b) if and only if it allows A to elect, by
filing the required forms by March 16, 1999, to enroll in Employer
X's plan either with employee-only coverage, with employee-plus-
spouse coverage, or with family coverage, effective as of February
15, 1999.
(c) Notice of enrollment rights. On or before the time an employee
is offered the opportunity to enroll in a group health plan, the plan
is required to provide the employee with a description of the plan's
special enrollment rules under this section. For this purpose, the plan
may use the following model description of the special enrollment rules
under this section:
If you are declining enrollment for yourself or your dependents
(including your spouse) because of other health insurance coverage,
you may in the future be able to enroll yourself or your dependents
in this plan, provided that you request enrollment within 30 days
after your other coverage ends. In addition, if you have a new
dependent as a result of marriage, birth, adoption, or placement for
adoption, you may be able to enroll yourself and your dependents,
provided that you request enrollment within 30 days after the
marriage, birth, adoption, or placement for adoption.
(d)(1) Special enrollment date definition. A special enrollment
date for an individual means any date in paragraph (a)(7) or (b)(8) of
this section on which the individual has a right to have enrollment in
a group health plan become effective under this section.
(2) Examples. The rules of this section are illustrated by the
following examples:
Example 1. (i)(A) Employer Y maintains a group health plan that
allows employees to enroll in the plan either--
(1) Effective on the first day of employment by an election
filed within three days thereafter;
(2) Effective on any subsequent January 1 by an election made
during the preceding months of November or December; or
(3) Effective as of any special enrollment date described in
this section.
(B) Employee B is hired by Employer Y on March 15, 1998 and does
not elect to enroll in Employer Y's plan until January 31, 1999 when
B loses coverage under another plan. B elects to enroll in Employer
Y's plan effective on February 1, 1999, by filing the completed
request form by January 31, 1999, in accordance with the special
rule set forth in paragraph (a) of this section.
(ii) In this Example 1, B has enrolled on a special enrollment
date because the enrollment is effective at a date described in
paragraph (a)(7) of this section.
Example 2. (i) Same facts as Example 1, except that B's loss of
coverage under the other plan occurs on December 31, 1998 and B
elect to enroll in Employer Y's plan effective on January 1, 1999 by
filing the completed request form by December 31, 1998, in
accordance with the special rule set forth in paragraph (a) of this
section.
(ii) In this Example 2, B has enrolled on a special enrollment
date because the enrollment is effective at a date described in
paragraph (a)(7) of this section (even though this date is also a
regular enrollment date under the plan).
Sec. 2590.701-7 HMO affiliation period as alternative to preexisting
condition exclusion.
(a) In general. A group health plan offering health insurance
coverage through an HMO, or an HMO that offers health insurance
coverage in connection with a group health plan, may impose an
affiliation period only if each of the requirements in paragraph (b) of
this section is satisfied.
(b) Requirements for affiliation period. (1) No preexisting
condition exclusion is imposed with respect to any coverage offered by
the HMO in connection with the particular group health plan.
(2) No premium is charged to a participant or beneficiary for the
affiliation period.
(3) The affiliation period for the HMO coverage is applied
uniformly without regard to any health status-related factors.
(4) The affiliation period does not exceed 2 months (or 3 months in
the case of a late enrollee).
(5) The affiliation period begins on the enrollment date.
(6) The affiliation period for enrollment in the HMO under a plan
runs concurrently with any waiting period.
(c) Alternatives to affiliation period. An HMO may use alternative
methods in lieu of an affiliation period to address adverse selection,
as approved by the State insurance commissioner or other official
designated to regulate HMOs. Nothing in the part requires a State to
receive proposals for or approve alternatives to affiliation periods.
Sec. 2590.702 Prohibiting discrimination against participants and
beneficiaries based on a health status-related factor.
(a) In eligibility to enroll--(1) In general. Subject to paragraph
(a)(2) of this section, a group health plan, and a health insurance
issuer offering group health insurance coverage in connection with a
group health plan, may not establish rules for eligibility (including
continued eligibility) of any individual to enroll under the terms of
the plan based on any of the following health status-related factors in
relation to the individual or a dependent of the individual.
(i) Health status.
(ii) Medical condition (including both physical and mental
illnesses), as defined in Sec. 2590.701-2.
(iii) Claims experience.
(iv) Receipt of health care.
(v) Medical history.
(vi) Genetic information, as defined in Sec. 2590.701-2.
(vii) Evidence of insurability (including conditions arising out of
acts of domestic violence).
(viii) Disability.
(2) No application to benefits or exclusions. To the extent
consistent with section 701 of the Act and Sec. 2590.701-3, paragraph
(a)(1) of this section shall not be construed--
(i) To require a group health plan, or a health insurance issuer
offering group health insurance coverage, to provide particular
benefits other than those provided under the terms of such plan or
coverage; or
(ii) To prevent such a plan or issuer from establishing limitation
or restrictions on the amount, level, extent, or nature of the benefits
or coverage for similarly situated individuals enrolled in the plan or
coverage.
[[Page 16953]]
(3) Construction. For purposes of paragraph (a)(1) of this section,
rules for eligibility to enroll include rule defining any applicable
waiting (or affiliation) periods for such enrollment and rules relating
to late and special enrollment.
(4) Example. The following example illustrates the rules of this
paragraph (a):
Example. (i) An employer sponsors a group health plan that is
available to all employees who enroll within the first 30 days of
their employment. However, individuals who do not enroll in the
first 30 days cannot enroll later unless they pass a physical
examination.
(ii) In this Example, the plan discriminates on the basis of one
or more health status-related factors.
(b) In premiums or contributions--(1) In general. A group health
plan, and a health insurance issuer offering health insurance coverage
in connection with a group health plan, may not require an individual
(as a condition of enrollment or continued enrollment under the plan)
to pay a premium or contribution that is greater than the premium or
contribution for a similarly situated individual enrolled in the plan
based on any health status-related factor, in relation to the
individual or a dependent of the individual.
(2) Construction. Nothing in paragraph (b)(1) of this section shall
be construed--
(i) To restrict the amount that an employer may be charged by an
issuer for coverage under a group health plan; or
(ii) To prevent a group health plan, and a health insurance issuer
offering group health insurance coverage, from establishing premium
discounts or rebates or modifying otherwise applicable copayments or
deductibles in return for adherence to a bona fide wellness program.
For purposes of this section, a bona fide wellness program is a program
of health promotion and disease prevention.
(3) Example. The rules of this paragraph (b) are illustrated by the
following example:
Example. (i) Plan X offers a premium discount to participants
who adhere to a cholesterol-reduction wellness program. Enrollees
are expected to keep a diary of their food intake over 6 weeks. They
periodically submit the diary to the plan physician who responds
with suggested diet modifications. Enrollees are to modify their
diets in accordance with the physician's recommendations. At the end
of the 6 weeks, enrollees are given a cholesterol test and those who
achieve a count under 200 receive a premium discount.
(ii) In this Example, because enrollees who otherwise comply
with the program may be unable to achieve a cholesterol count under
200 due to a health status-related factor, this is not a bona fide
wellness program and such discounts would discriminate impermissibly
based on one or more health status-related factors. However, if,
instead, individuals covered by the plan were entitled to receive
the discount for complying with the diary and dietary requirements
and were not required to pass a cholesterol test, the program would
be a bona fide wellness program.
Sec. 2590.703 Guaranteed renewability in multiemployer plans and
multiple employer welfare arrangements. [Reserved]
Subpart B--Other Requirements
Sec. 2590.711 Standard relating to benefits for mothers and newborns.
[Reserved]
Sec. 2590.712 Parity in the application of certain limits to mental
health benefits. [Reserved]
Subpart C--General Provisions
Sec. 2590.731 Preemption; State flexibility; construction.
(a) Continued applicability of State law with respect to health
insurance issuers. Subject to paragraph (b) of this section and except
as provided in paragraph (c) of this section, part 7 of subtitle B of
title I of the Act is not to be construed to supersede any provision of
State law which establishes, implements, or continues in effect any
standard or requirement solely relating to health insurance issuers in
connection with group health insurance coverage except to the extent
that such standard or requirement prevents the application of a
requirements of this part.
(b) Continued preemption with respect to group health plans.
Nothing in part 7 of subtitle B of title I of the Act affects or
modifies the provisions of section 514 of the Act with respect to group
health plans.
(c) Special rules--(1) In general. Subject to paragraph (c)(2) of
this section, the provisions of part 7 of subtitle B of title I of the
Act relating to health insurance coverage offered by a health insurance
issuer supersede any provision of State law which establishes,
implements, or continues in effect a standard or requirement applicable
to imposition of a preexisting condition exclusion specifically
governed by section 701 which differs from the standards or
requirements specified in such section.
(2) Exceptions. Only in relation to health insurance coverage
offered by a health insurance issuer, the provisions of this part do
not supersede any provision of State law to the extent that such
provision--
(i) Shortens the period of time from the ``6-month period''
described in section 701(a)(1) of the Act and Sec. 2590.701-3(a)(1)(i)
(for purposes of identifying a preexisting condition);
(ii) Shortens the period of time from the ``12 months'' and ``18
months'' described in section 701(a)(2) of the Act and Sec. 2590.701-
3(a)(1)(ii) (for purposes of applying a preexisting condition exclusion
period);
(iii) Provides for a greater number of days than the ``63 day
period'' described in sections 701(c)(2)(A) and (d)(4)(A) of the Act
and Secs. 2590.701-3(a)(1)(iii) and 2590.701-4 (for purposes of
applying the break in coverage rules);
(iv) Provides for a greater number of days than the ``30-day
period'' described in sections 701 (b)(2) and (d)(1) of the Act and
Sec. 2590.701-3(b) (for purposes of the enrollment period and
preexisting condition exclusion periods for certain newborns and
children that are adopted or placed for adoption);
(v) Prohibits the imposition of any preexisting condition exclusion
in cases not described in section 701(d) of the Act or expands the
exceptions described therein;
(vi) Requires special enrollment periods in addition to those
required under section 701(f) of the Act; or
(vii) Reduces the maximum period permitted in an affiliation period
under section 701(g)(1)(B) of the Act.
(d) Definitions--(1) State law. For purposes of this Sec. 2590.736
the term State law includes all laws, decisions, rules, regulations, or
other State action having the effect of law, of any State. A law of the
United States applicable only to the District of Columbia is treated as
a State law rather an a law of the United States.
(2) State. For purposes of this section the term State includes a
State, the Northern Mariana Islands, any political subdivisions of a
State or such Island, or any agency or instrumentality of either.
Sec. 2590.732 Special rule relating to group health plans.
(a) General exception for certain small group health plans. The
requirements of this part 7 of subtitle B of title I of the Act do not
apply to any group health plan (and group health insurance coverage
offered in connection with a group health plan) for any plan year if,
on the first day of the plan year, the plan has fewer than 2
participants who are current employees.
(b) Excepted benefits--(1) In general. The requirements of subparts
A and C of this part do not apply to any group health plan (or any
group health insurance coverage offered in connection with a group
health plan) in relation to its provision of the benefits
[[Page 16954]]
described in paragraph (b)(92), (3), (4), or (5) of this section (or
any combination of these benefits).
(2) Benefits excepted in all circumstances. The following benefits
are excepted in all circumstances--
(i) Coverage only for accident (including accidental death and
dismemberment);
(ii) Disability income insurance;
(iii) Liability insurance, including general liability insurance
and automobile liability insurance;
(iv) Coverage issued as a supplement to liability insurance;
(v) Workers' compensation or similar insurance;
(vi) Automobile medical payment insurance;
(vii) Credit-only insurance (for example, mortgage insurance); and
(viii) Coverage for on-site medical clinics.
(3) Limited excepted benefits--(i) In general. Limited-scope dental
benefits, limited-scope vision benefits, or long-term care benefits are
excepted if they are provided under a separate policy, certificate, or
contract of insurance, or are otherwise not an integral part of the
plan, as defined in paragraph (b)(3)(ii) of this section.
(ii) Integral. For purposes of paragraph (b)(3)(i) of this section,
benefits are deemed to be an integral part of a plan unless a
participant has the right to elect not to receive coverage for the
benefits and, if the participant elects to receive coverage for the
benefits, the participant pays an additional premium or contribution
for that coverage.
(iii) Limited scope. Limited scope dental or vision benefits are
dental or vision benefits that are sold under a separate policy or
rider and that are limited in scope to a narrow range or type of
benefits that are generally excluded from hospital/medical/surgical
benefit packages.
(iv) Long-term care. Long-term care benefits are benefits that are
either--
(A) Subject to State long-term care insurance laws;
(B) For qualified long-term care insurance services, as defined in
section 7702B(c)(1) of the Code, or provided under a qualified long-
term care insurance contract, as defined in section 7702B(b) of the
Internal Revenue Code; or
(C) Based on cognitive impairment or a loss of functional capacity
that is expected to be chronic.
(4) Noncoordinated benefits--(i) Excepted benefits that are not
coordinated. Coverage for only a specified disease or illness (for
example, cancer-only policies) or hospital indemnity or other fixed
dollar indemnity insurance (for example, $100/day) is excepted only if
it meets each of the conditions specified in paragraph (b)(4)(ii) of
this section.
(ii) Conditions. Benefits are described in paragraph (b)(4)(i) of
this section only if--
(A) The benefits are provided under a separate policy, certificate,
or contract of insurance;
(B) There is no coordination between the provision of the benefits
and an exclusion of benefits under any group health plan maintained by
the same plan sponsor; and
(C) The benefits are paid with respect to an event without regard
to whether benefits are provided with respect to the event under any
group health plan maintained by the same plan sponsor.
(5) Supplemental benefits. The following benefits are excepted only
if they are provided under a separate policy, certificate, or contract
of insurance:
(i) Medicare supplemental health insurance (as defined under
section 1882(g)(1) of the Social Security Act; also known as Medigap or
MedSupp insurance);
(ii) Coverage supplemental to the coverage provided under Chapter
55, Title 10 of the United States Code (also known as CHAMPUS
supplemental programs), and
(iii) Similar supplemental coverage provided to coverage under a
group health plan.
(c) Treatment of partnerships. [Reserved]
Sec. 2590.734 Enforcement. [Reserved]
Sec. 2590.736 Effective dates.
(a) General effective dates--(1) Non-collectively-bargained plans.
Except as otherwise provided in this section, part 7 of subtitle B of
title I of the Act and subparts A and C of this part apply with respect
to group health plans, including health insurance issuers offering
health insurance coverage in connection with group health plans, for
plan years beginning after June 30, 1997.
(2) Collectively bargained plans. Except as otherwise provided in
this section (other than paragraph (a)(1) of this section), in the case
of a group health plan maintained pursuant to one or more collective
bargaining agreements between employee representatives and one or more
employers ratified before August 21, 1996, Part 7 of subtitle B of
title I of the Act and subparts A and C of this part do not apply to
plan years beginning before the later of July 1, 1997, or the date on
which the last of the collective bargaining agreements relating to the
plan terminates (determined without regard to any extension thereof
agreed to after August 21, 1996). For these purposes, any plan
amendment made pursuant to a collective bargaining agreement relating
to the plan, that amends the plan solely to conform to any requirement
of such part, is not treated as a termination of the collective
bargaining agreement.
(3)(i) Preexisting condition exclusion periods for current
employees. Any preexisting condition exclusion period permitted under
Sec. 2590.701-3 is measured from the individual's enrollment date in
the plan. Such exclusion period, as limited under Sec. 2590.701-3, may
be completed prior to the effective date of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA) for his or her plan.
Therefore, on the date the individual's plan becomes subject to part 7
of subtitle B of title I of the Act, no preexisting condition exclusion
may be imposed with respect to an individual beyond the limitation of
Sec. 2590.701-3. For an individual who has not completed the permitted
exclusion period under HIPAA, upon the effective date for his or her
plan, the individual may use creditable coverage that the individual
had prior to the enrollment date to reduce the remaining preexisting
condition exclusion period applicable to the individual.
(ii) Examples. The following examples illustrate the rules of this
paragraph (a)(3):
Example 1. (i) Individual A has been working for Employer X and
has been covered under Employer X's plan since March 1, 1997. Under
Employer X's plan, as in effect before January 1, 1998, there is no
coverage for any preexisting condition. Employer X's plan year
begins on January 1, 1998. A's enrollment date in the plan is March
1, 1997 and A has no creditable coverage before this date.
(ii) In this Example 1, Employer X may continue to impose the
preexisting condition exclusion under the plan through February 28,
1998 (the end of the 12-month period using anniversary dates).
Example 2. (i) Same facts as in Example 1, except that A's
enrollment date was August 1, 1996, instead of March 1, 1997.
(ii) In this Example 2, on January 1, 1998, Employer X's plan
may no longer exclude treatment for any preexisting condition that A
may have; however, because Employer X's plan is not subject to HIPAA
until January 1, 1998, A is not entitled to claim reimbursement for
expenses under the plan for treatments for any preexisting condition
of A received before January 1, 1998.
(b) Effective date for certification requirement--(1) In general.
Subject to the transitional rule in Sec. 2590.701-5(a)(5)(iii), the
certification rules of
[[Page 16955]]
Sec. 2590.701-5 apply to events occurring on or after July 1, 1996.
(2) Period covered by certificate. A certificate is not required to
reflect coverage before July 1, 1996.
(3) No certificate before June 1, 1997. Notwithstanding any other
provision of subpart A or C of this part, in no case is a certificate
required to be provided before June 1, 1997.
(c) Limitation on actions. No enforcement action is to be taken,
pursuant to part 7 of subtitle B of title I of the Act, against a group
health plan or health insurance issuer with respect to a violation of a
requirement imposed by part 7 of subtitle B of title I of the Act
before January 1, 1998, if the plan or issuer has sought to comply in
good faith with such requirements. Compliance with this part is deemed
to be good faith compliance with the requirements of part 7 of subtitle
B of title I of the Act.
(d) Transition rules for counting creditable coverage. An
individual who seeks to establish creditable coverage for periods
before July 1, 1996 is entitled to establish such coverage through the
presentation of documents or other means in accordance with the
provisions of Sec. 2590.701-5(c). For coverage relating to an event
occurring before July 1, 1996, a group health plan and a health
insurance issuer is not subject to any penalty or enforcement action
with respect to the plan's or issuer's counting (or not counting) such
coverage if the plan or issuer has sought to comply in good faith with
the applicable requirements under Sec. 2590.701-5(c).
(e) Transition rules for certificates of creditable coverage--(1)
Certificates only upon request. For events occurring on or after July
1, 1996, but before October 1, 1996, a certificate is required to be
provided only upon a written request by or on behalf of the individual
to whom the certificate applies.
(2) Certificates before June 1, 1997. For events occurring on or
after October 1, 1996 and before June 1, 1997, a certificate must be
furnished no later than June 1, 1997, or any later date permitted under
Sec. 2590.701-5(a)(2) (ii) and (iii).
(3) Optional notice--(i) In general. This paragraph (e)(3) applies
with respect to events described in Sec. 2590.701-5(a)(5)(ii), that
occur on or after October 1, 1996 but before June 1, 1997. A group
health plan or health insurance issuer offering group health coverage
is deemed to satisfy Sec. 2590.701-5(a) (2) and (3) if a notice is
provided in accordance with the provisions of paragraphs (e)(3) (i)
through (iv) of this section.
(ii) Time of notice. The notice must be provided no later than June
1, 1997.
(iii) Form and content of notice. A notice provided pursuant to
this paragraph (e)(3) must be in writing and must include information
substantially similar to the information included in a model notice
authorized by the Secretary. Copies of the model notice are available
on the following website--http://www.dol.gov/dol/pwba/ (or call 1-800-
998-7542).
(iv) Providing certificate after request. If an individual requests
a certificate following receipt of the notice, the certificate must be
provided at the time of the request as set forth in Sec. 2590.701-
5(a)(5)(iii).
(v) Other certification rules apply. The rules set forth in
Sec. 2590.701-5(a)(4)(i) (method of delivery) and Sec. 2590.701-5(a)(1)
(entities required to provide a certificate) apply with respect to the
provision of the notice.
Signed at Washington, D.C., this 27 day of March, 1997.
Olena Berg,
Assistant Secretary, Pension and Welfare Benefits Administration, U.S.
Department of Labor.
Department of Health and Human Services
45 CFR Subtitle A
45 CFR is amended as set forth below:
1. The heading for subtitle A is revised to read as follows:
SUBTITLE A--DEPARTMENT OF HEALTH AND HUMAN SERVICES
2. Existing parts 1 through 100 are designated as subchapter A of
subtitle A and a new subchapter heading is added to read as follows:
SUBCHAPTER A--GENERAL ADMINISTRATION
3. New subchapter B, consisting of parts 140 through 199, is added
to read as follows:
SUBCHAPTER B--REQUIREMENTS RELATING TO HEALTH CARE ACCESS
PARTS 140--143 [RESERVED]
PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE
Subpart A--General Provisions
Sec.
144.101 Basis and purpose.
144.102 Scope and applicability.
144.103 Definitions applicable to both group (45 CFR Part 146) and
individual (45 CFR Part 148) markets.
Subpart B--[Reserved]
Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public
Health Service Act, 42 U.S.C. 300gg through 300gg-63, 300gg-91, and
300gg-92.
PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE
Subpart A--General Provisions
Sec. 144.101 Basis and purpose.
Part 146 of this subchapter implements sections 2701 through 2723
of the Public Health Service Act (PHS Act, 42 U.S.C. 300gg, et seq.).
Its purpose is to improve access to group health insurance coverage and
to guarantee the renewability of all coverage in the group market. Part
148 of this subchapter implements sections 2741 through 2763 of the PHS
Act. Its purpose is to improve access to individual health insurance
coverage for certain eligible individuals who previously had group
coverage, and to guarantee the renewability of all coverage in the
individual market. Sections 2791 and 2792 of the PHS Act define terms
used in the regulations in this subchapter and provide the basis for
issuing these regulations, respectively.
Sec. 144.102 Scope and applicability.
(a) For purposes of 45 CFR parts 144 through 148, all health
insurance coverage is generally divided into two markets--the group
market (set forth in 45 CFR part 146) and the individual market (set
forth in 45 CFR part 148). 45 CFR part 146 limits the group market to
insurance sold to employment-related group health plans and further
divides the group market into the large group market and the small
group market. Federal law further defines the small group market as
insurance sold to employer plans with 2 to 50 employees. State law,
however, may expand the definition of the small group market to include
certain coverage that would otherwise, under the Federal law, be
considered coverage in the large group market or the individual market.
(b) The protections afforded under 45 CFR parts 144 through 148 to
individuals and employers (and other sponsors of health insurance
offered in connection with a group health plan) are determined by
whether the coverage involved is obtained in the small group market,
the large group market, or the individual market. Small employers, and
individuals who are eligible to enroll under the employer's plan, are
guaranteed availability of insurance coverage sold in the small group
market. Small and large employers are guaranteed the right to renew
their group coverage, subject to certain
[[Page 16956]]
exceptions. Eligible individuals are guaranteed availability of
coverage sold in the individual market, and all coverage in the
individual market must be guaranteed renewable.
(c) Coverage that is provided to associations, but is not related
to employment, is not considered group coverage under 45 CFR parts 144
through 148. The coverage is considered coverage in the individual
market, regardless of whether it is considered group coverage under
State law.
Sec. 144.103 Definitions applicable to both group (45 CFR part 146)
and individual (45 CFR part 148) markets.
Unless otherwise provided, the following definitions apply:
Affiliation period means a period of time that must expire before
health insurance coverage provided by an HMO becomes effective, and
during which the HMO is not required to provide benefits.
Applicable State authority means, with respect to a health
insurance issuer in a State, the State insurance commissioner or
official or officials designated by the State to enforce the
requirements of 45 CFR parts 146 and 148 for the State involved with
respect to the issuer.
Beneficiary has the meaning given the term under section 3(8) of
the Employee Retirement Income Security Act of 1974 (ERISA), which
states, ``a person designated by a participant, or by the terms of an
employee benefit plan, who is or may become entitled to a benefit''
under the plan.
Bona fide association means, with respect to health insurance
coverage offered in a State, an association that meets the following
conditions:
(1) Has been actively in existence for at least 5 years.
(2) Has been formed and maintained in good faith for purposes other
than obtaining insurance.
(3) Does not condition membership in the association on any health
status-related factor relating to an individual (including an employee
of an employer or a dependent of any employee).
(4) Makes health insurance coverage offered through the association
available to all members regardless of any health status-related factor
relating to the members (or individuals eligible for coverage through a
member).
(5) Does not make health insurance coverage offered through the
association available other than in connection with a member of the
association.
(6) Meets any additional requirements that may be imposed under
State law.
Church plan means a Church plan within the meaning of section 3(33)
of ERISA.
COBRA definitions:
(1) COBRA means Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(2) COBRA continuation coverage means coverage, under a group
health plan, that satisfies an applicable COBRA continuation provision.
(3) COBRA continuation provision means sections 601 through 608 of
the Employee Retirement Income Security Act of 1974, section 4980B of
the Internal Revenue Code of 1986 (other than paragraph (f)(1) of
section 4980B insofar as it relates to pediatric vaccines), and Title
XXII of the PHS Act.
(4) Continuation coverage means coverage under a COBRA continuation
provision or a similar State program. Coverage provided by a plan that
is subject to a COBRA continuation provision or similar State program,
but that does not satisfy all the requirements of that provision or
program, will be deemed to be continuation coverage if it allows an
individual to elect to continue coverage for a period of at least 18
months. Continuation coverage does not include coverage under a
conversion policy required to be offered to an individual upon
exhaustion of continuation coverage, nor does it include continuation
coverage under the Federal Employees Health Benefits Program.
(5) Exhaustion of COBRA continuation coverage means that an
individual's COBRA continuation coverage ceases for any reason other
than either failure of the individual to pay premiums on a timely
basis, or for cause (such as making a fraudulent claim or an
intentional misrepresentation of a material fact in connection with the
plan). An individual is considered to have exhausted COBRA continuation
coverage if such coverage ceases--
(i) Due to the failure of the employer or other responsible entity
to remit premiums on a timely basis; or
(ii) When the individual no longer resides, lives, or works in a
service area of an HMO or similar program (whether or not within the
choice of the individual) and there is no other COBRA continuation
coverage available to the individual.
(6) Exhaustion of continuation coverage means that an individual's
continuation coverage ceases for any reason other than either failure
of the individual to pay premiums on a timely basis, or for cause (such
as making a fraudulent claim or an intentional misrepresentation of a
material fact in connection with the plan). An individual is considered
to have exhausted continuation coverage if--
(i) Coverage ceases due to the failure of the employer or other
responsible entity to remit premiums on a timely basis, or
(ii) When the individual no longer resides, lives, or works in a
service area of an HMO or similar program (whether or not within the
choice of the individual) and there is no other continuation coverage
available to the individual.
Condition means a medical condition.
Creditable coverage has the meaning of 45 CFR 146.113(a).
Eligible individual, for purposes of--
(1) The group market provisions in 45 CFR part 146, subpart E, the
term is defined in 45 CFR 146.150(b); and
(2) The individual market provisions in 45 CFR part 148, the term
is defined in 45 CFR 148.103.
Employee has the meaning given the term under section 3(6) of
ERISA, which states, ``any individual employed by an employer.''
Employer has the meaning given the term under section 3(5) of
ERISA, which states, ``any person acting directly as an employer, or
indirectly in the interest of an employer, in relation to an employee
benefit plan; and includes a group or association of employers acting
for an employer in such capacity.''
Enroll means to become covered for benefits under a group health
plan (that is, when coverage becomes effective), without regard to when
the individual may have completed or filed any forms that are required
in order to enroll in the plan. For this purpose, an individual who has
health insurance coverage under a group health plan is enrolled in the
plan regardless of whether the individual elects coverage, the
individual is a dependent who becomes covered as a result of an
election by a participant, or the individual becomes covered without an
election.
Enrollment date definitions (enrollment date and first day of
coverage) are set forth in 45 CFR 146.11(a)(2)(i) and (a)(2)(ii).
ERISA stands for the Employee Retirement Income Security Act of
1974, as amended (29 U.S.C. 1001 et seq.).
Excepted benefits for purposes of the--
(1) Group market provisions in 45 CFR part 146 subpart D, the term
is defined in 45 CFR 146.145(b); and
(2) The individual market provisions in 45 CFR part 148, the term
is defined in 45 CFR 148.220.
Federal government plan means a governmental plan established or
maintained for its employees by the Government of the United States or
by
[[Page 16957]]
any agency or instrumentality of such Government.
Genetic information means information about genes, gene products,
and inherited characteristics that may derive from the individual or a
family member. This includes information regarding carrier status and
information derived from laboratory tests that identify mutations in
specific genes or chromosomes, physical medical examinations, family
histories, and direct analysis of genes or chromosomes.
Governmental plan means a governmental plan within the meaning of
section 3(32) of ERISA.
Group health insurance coverage means health insurance coverage
offered in connection with a group health plan.
Group health plan means an employee welfare benefit plan (as
defined in section 3(1) of ERISA) to the extent that the plan provides
medical care (as defined in section 2791(a)(2) of the PHS Act and
including items and services paid for as medical care) to employees or
their dependents (as defined under the terms of the plan) directly or
through insurance, reimbursement, or otherwise.
Group market means the market for health insurance coverage offered
in connection with a group health plan. (However, unless otherwise
provided under State law, certain very small plans may be treated as
being in the individual market, rather than the group market; see the
definition of ``individual market'' in this section.)
Health insurance coverage means benefits consisting of medical care
(provided directly, through insurance or reimbursement, or otherwise)
under any hospital or medical service policy or certificate, hospital
or medical service plan contract, or HMO contract offered by a health
insurance issuer.
Health insurance issuer or issuer means an insurance company,
insurance service, or insurance organization (including an HMO) that is
required to be licensed to engage in the business of insurance in a
State and that is subject to State law that regulates insurance (within
the meaning of section 514(b)(2) of ERISA). This term does not include
a group health plan.
Health maintenance organization or HMO means--
(1) A Federally qualified health maintenance organization (as
defined in section 1301(a) of the PHS Act);
(2) An organization recognized under State law as a health
maintenance organization; or
(3) A similar organization regulated under State law for solvency
in the same manner and to the same extent as such a health maintenance
organization.
Health status-related factor means health status, medical condition
(including both physical and mental illnesses), claims experience,
receipt of health care, medical history, genetic information, evidence
of insurability (including conditions arising out of acts of domestic
violence) and disability.
Individual health insurance coverage means health insurance
coverage offered to individuals in the individual market, but does not
include short-term, limited-duration insurance. Individual health
insurance coverage can include dependent coverage.
Indiviual market means the market for health insurance coverage
offered to individuals other than in connection with a group health
plan. Unless a State elects otherwise in accordance with section
2791(e)(1)(B)(ii) of the PHS Act, such term also includes coverage
offered in connection with a group health plan that has fewer than two
participants as current employees on the first day of the plan year.
Internal Revenue Code (Code) means the Internal Revenue Code of
1986, as amended (Title 26, United States Code).
Issuer means a health insurance issuer.
Large employer means, in connection with a group health plan with
respect to a calendar year and a plan year, an employer who employed an
average of at least 51 employees on business days during the preceding
calendar year and who employs at least 2 employees on the first day of
the plan year, unless otherwise provided under State law.
Large group market means the health insurance market under which
individuals obtain health insurance coverage (directly or through any
arrangement) on behalf of themselves (and their dependents) through a
group health plan maintained by a large employer, unless otherwise
provided under State law.
Late enrollment definitions (late enrollee and late enrollment) are
set forth in 45 CFR 146.111 (a)(2)(iii) and (a)(2)(iv).
Medical care or condition means amounts paid for any of the
following:
(1) The diagnosis, cure, mitigation, or prevention of disease, or
amounts paid for the purpose of affecting any structure or function of
the body.
(2) Transportation primarily for and essential to medical care
referred to in paragraph (1) of this definition.
(3) Insurance covering medical care referred to in paragraphs (1)
and (2) of this definition.
Medical condition means any condition, whether physical or mental,
including, but not limited to, any condition resulting from illness,
injury (whether or not the injury is accidental), pregnancy, or
congenital malformation. However, genetic information is not a
condition.
NAIC stands for the National Association of Insurance
Commissioners.
Network plan means health insurance coverage of a health insurance
issuer under which the financing and delivery of medical care
(including items and services paid for as medical care) are provided,
in whole or in part, through a defined set of providers under contract
with the issuer.
Non-Federal governmental plan means a governmental plan that is not
a Federal government plan.
Participant has the meaning given the term under section 3(7) of
ERISA, which states, ``any employee or former employee of an employer,
or any member or former member of an employee organization, who is or
may become eligible to receive a benefit of any type from an employee
benefit plan which covers employees of such employer or members of such
organization, or whose beneficiaries may be eligible to receive any
such benefit.''
PHS Act stands for the Public Health Service Act.
Placement, or being placed, for adoption means the assumption and
retention of a legal obligation for total or partial support of a child
by a person with whom the child has been placed in anticipation of the
child's adoption. The child's placement for adoption with the person
terminates upon the termination of the legal obligation.
Plan sponsor has the meaning given the term under section 3(16)(B)
of ERISA, which states ``(i) the employer in the case of an employee
benefit plan established or maintained by a single employer, (ii) the
employee organization in the case of a plan established or maintained
by an employee organization, or (iii) in the case of a plan established
or maintained by two or more employers or jointly by one or more
employers and one or more employee organizations, the association,
committee, joint board of trustees, or other similar group of
representatives of the parties who establish or maintain the plan.''
Plan year means the year that is designated as the plan year in the
plan document of a group health plan, except that if the plan document
does not designate a plan year or if there is no plan document, the
plan year is:
(1) THe deductible/limit year used under the plan.
[[Page 16958]]
(2) If the plan does not impose deductibles or limits on a yearly
basis, the plan year is the policy year.
(3) If the plan does not impose deductibles or limits on a yearly
basis, and either the plan is not insured or the insurance policy is
not renewed on an annual basis, the plan year is the employer's taxable
year.
(4) In any other case, the plan year is the calendar year.
Preexisting condition exclusion means a limitation or exclusion of
benefits relating to a condition based on the fact that the condition
was present before the first day of coverage, whether or not any
medical advice, diagnosis, care, or treatment was recommended or
received before that day. A preexisting condition exclusion includes
any inclusion applicable to an individual as a result of information
that is obtained relating to an individual's health status before the
individual's first day of coverage, such as a condition identified as a
result of a pre-enrollment questionnaire or physical examination given
to the individual, or review of medical records relating to the pre-
enrollment period.
Public health plan means ``public health plan'' within the meaning
of 45 CFR 146.113(a)(1)(ix).
Short-term limited duration insurance means health insurance
coverage provided under a contract with an issuer that has an
expiration date specified in the contract (taking into account any
extensions that may be elected by the policyholder without the issuer's
consent) that is within 12 months of the date the contract becomes
effective.
Significant break in coverage has the meaning given the term in 45
CFR 146.113(b)(2)(iii).
Small employer means, in connection with a group health plan with
respect to a calendar year and a plan year, an employer who employed an
average of at least 2 but not more than 50 employees on business days
during the preceding calendar year and who employs at least 2 employees
on the first day of the plan year, unless otherwise provided under
State law.
Small group market means the health insurance market under which
individuals obtain health insurance coverage (directly or through any
arrangement) on behalf of themselves (and their dependents) through a
group health plan maintained by a small employer.
Special enrollment date has the meaning given the term in 45 CFR
146.117(d).
State means each of the several States, the District of Columbia,
Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Northern
Mariana Islands.
State health benefits risk pool means a ``State health benefits
risk pool'' within the meaning of 45 CFR 146.113(a)(1)(vii).
Waiting period means the period that must pass before an employee
or dependent is eligible to enroll under the terms of a group health
plan. If an employee or dependent enrolls as a late enrollee or on a
special enrollment date, any period before such late or special
enrollment is not a waiting period. If an individual seeks and obtains
coverage in the individual market, any period after the date the
individual files a substantially complete application for coverage and
before the first day of coverage is a waiting period.
Subpart B--[Reserved]
PART 145--[RESERVED]
PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET
Subpart A--General Provisions
Sec.
146.101 Basis and scope.
Subpart B--Requirements Relating to Access and Renewability of
Coverage, and Limitations on Preexisting Condition Exclusion Periods
Sec.
146.111 Limitations on preexisting condition exclusion period.
146.113 Rules relating to creditable coverage.
146.115 Certification and disclosure of previous coverage.
146.117 Special enrollment periods.
146.119 HMO affiliation period as alternative to preexisting
condition exclusion.
146.121 Prohibiting discrimination against participants and
beneficiaries based on health status-related factors.
146.125 Effective dates.
Subpart C--[Reserved]
Subpart D--Preemption and Special Rules
Sec.
146.143 Preemption; State flexibility; construction.
146.145 Special rules relating to group health plans.
Subpart E--Provisions Applicable to Only Health Insurance Issuers
Sec.
146.150 Guaranteed availability of coverage for employers in the
small group market.
146.152 Guaranteed renewability of coverage for employers in the
group market.
146.160 Disclosure of information.
Subpart F--Exclusion of Plans and Enforcement
Sec.
146.180 Treatment of non-Federal governmental plans.
146.184 Enforcement.
Authority: Secs. 2701 through 2763, 2791, and 2792 of the PHS
Act, 42 U.S.C. 300gg through 300gg-63, 300gg-91, and 300gg-92.
PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET
Subpart A--General Provisions
Sec. 146.101 Basis and scope.
(a) Statutory basis. This part implements sections 2701 through
2723 of the PHS Act. Its purpose is to improve access to group health
insurance coverage and to guarantee the renewability of all coverage in
the group market. Sections 2791 and 2792 of the PHS Act define terms
used in the regulations in this subchapter and provide the basis for
issuing these regulations, respectively.
(b) Scope. A group health plan or health insurance issuer offering
group health insurance coverage may provide greater rights to
participants and beneficiaries than those set forth in this part.
(1) Subpart B. Subpart B of this part sets forth minimum
requirements for group health plans and health insurance issuers
offering group health insurance coverage concerning:
(i) Limitations on a preexisting condition exclusion period.
(ii) Certificates and disclosure of previous coverage.
(iii) Methods of counting creditable coverage.
(iv) Special enrollment periods.
(v) Use of an affiliation period by an HMO as an alternative to a
preexisting condition exclusion.
(2) Subpart D. Subpart D of this part sets forth exceptions to the
requirements of Subpart B for certain plans and certain types of
benefits.
(3) Subpart E. Subpart E of this part implements sections 2711
through 2713 of the PHS Act, which set forth requirements that apply
only to health insurance issuers offering health insurance coverage, in
connection with a group health plan.
(4) Subpart F. Subpart F of this part addresses the treatment of
non-Federal governmental plans, and sets forth enforcement procedures.
[[Page 16959]]
Subpart B--Requirements Relating to Access and Renewability of
Coverage, and Limitations on Preexisting Condition Exclusion
Periods
Sec. 146.111 Limitations on preexisting condition exclusion period.
(a) Preexisting condition exclusion--(1) General. Subject to
paragraph (b) of this section, a group health plan, and a health
insurance issuer offering group health insurance coverage, may impose,
with respect to a participant or beneficiary, a preexisting condition
exclusion only if the requirements of this paragraph (a) are satisfied.
(1) 6-month look-back rule. A preexisting condition exclusion must
relate to a condition (whether physical or mental), regardless of the
cause of the condition, for which medical advice, diagnosis, care, or
treatment was recommended or received within the 6-month period ending
on the enrollment date.
(A) For purposes of this paragraph (a)(1)(i), medical advice,
diagnosis, care, or treatment is taken into account only if it is
recommended by, or received from, an individual licensed or similarly
authorized to provide such services under State law and operating
within the scope of practice authorized by State law.
(B) For purposes of this paragraph (a)(1)(i), the 6-month period
ending on the enrollment date begins on the 6-month anniversary date
preceding the enrollment date. For example, for an enrollment date of
August 1, 1998, the 6-month period preceding the enrollment date is the
period commencing on February 1, 1998 and continuing through July 31,
1998. As another example, for an enrollment date of August 30, 1998,
the 6-month period preceding the enrollment date is the period
commencing on February 28, 1998 and continuing through August 29, 1998.
(C) The following examples illustrate the requirements of this
paragraph (a)(1)(i).
Example 1: (i) Individual A is treated for a medical condition 7
months before the enrollment date in Employer R's group health plan.
As part of such treatment, A's physician recommends that a follow-up
examination be given 2 months later. Despite this recommendation, A
does not receive a follow-up examination and no other medical
advice, diagnosis, care, or treatment for that condition is
recommended to A or received by A during the 6-month period ending
on A's enrollment date in Employer R's plan.
(ii) In this Example, Employer R's plan may not impose a
preexisting condition exclusion period with respect to the condition
for which A received treatment 7 months prior to the enrollment
date.
Example 2: (i) Same facts as Example 1 except that Employer R's
plan learns of the condition and attaches a rider to A's policy
excluding coverage for the condition. Three months after enrollment,
A's condition recurs, and Employer R's plan denies payment under the
rider.
(ii) In this Example, the rider is a preexisting condition
exclusion and Employer R's plan may not impose a preexisting
condition exclusion with respect to the condition for which A
received treatment 7 months prior to the enrollment date.
Example 3: (i) Individual B has asthma and is treated for that
condition several times during the 6-month period before B's
enrollment date in Employer S's plan. The plan imposes a 12-month
preexisting condition exclusion. B has no prior creditable coverage
to reduce the exclusion period. Three months after the enrollment
date, B begins coverage under Employer S's plan. B is hospitalized
for asthma.
(ii) In this Example, Employer S's plan may exclude payment for
the hospital stay and the physician services associated with this of
illness because the care is related to a medical condition for which
treatment was received by B during the 6-month period before the
enrollment date.
Example 4: (i) Individual D, who is subject to a preexisting
condition exclusion imposed by Employer U's plan, has diabetes, as
well as a foot condition caused by poor circulation and retinal
degeneration (both of which are conditions that may be directly
attributed to diabetes). After enrolling in the plan, D stumbles
and breaks a leg.
(ii) In this Example, the leg fracture is not a condition
related to D's diabetes, even though poor circulation in D's
extremities and poor vision may have contributed towards the
accident. However, any additional medical services that may be
needed because of D's preexisting diabetic condition that would not
be needed by another patient with a broken leg who does not have
diabetes may be subject to the preexisting condition exclusion
imposed under Employer U's plan.
(ii) Maximum length of preexisting condition exclusion (the look-
forward rule). A preexisting condition exclusion is not permitted to
extend for more than 12 months (18 months in the case of a late
enrollee) after the enrollment date. For purposes of this paragraph
(a)(1)(ii), the 12-month and 18-month periods after the enrollment date
are determined by reference to the anniversary of the enrollment date.
For example, for an enrollment date of August 1, 1998, the 12-month
period after the enrollment date is the period commencing on August 1,
1998 and continuing through July 31, 1999.
(iii) Reducing a preexisting condition exclusion period by
creditable coverage. The period of any preexisting condition exclusion
that would otherwise apply to an individual under a group health plan
is reduced by the number of days of creditable coverage the individual
has as of the enrollment date, as counted under Sec. 146.113. For
purposes of this part, the phrase ``days of creditable coverage'' has
the same meaning as the phrase ``the aggregate of the periods of
creditable coverage'' as such term is used in section 2701(a)(3) of the
PHS Act.
(iv) Other standards. See Sec. 146.121 for other standards that may
apply with respect to certain benefit limitations or restrictions under
a group health plan.
(2) Enrollment definitions--(i) Enrollment date means the first day
of coverage or, if there is a waiting period, the first day of the
waiting period.
(ii) (A) First day of coverage means, in the case of an individual
covered for benefits under a group health plan in the group market, the
first day of coverage under the plan and, in the case of an individual
covered by health insurance coverage in the individual market, the
first day of coverage under the policy.
(B) Example. The following example illustrates the requirements of
paragraph (a)(2)(ii)(A) of this section:
Example: (i) Employer V's group health plan provides for
coverage to begin on the first day of the first payroll period
following the date an employee is hired and completes the applicable
enrollment forms, or on any subsequent January 1 after completion of
the applicable enrollment forms. Employer V's plan imposes a
preexisting condition exclusion for 12 months (reduced by the
individual's creditable coverage) following an individual's
enrollment date. Employee E is hired by Employer V on October 13,
1998 and then on October 14, 1998 completes and files all the forms
necessary to enroll in the plan. E's coverage under the plan becomes
effective on October 25, 1998 (which is the beginning of the first
payroll period after E's date of hire).
(ii) In this Example, E's enrollment date is October 13, 1998
(which is the first day of the waiting period for E's enrollment and
is also E's date of hire). Accordingly, with respect to E, the 6-
month period in paragraph (a)(1)(i) would be the period from April
13, 1998 through October 12, 1998, the maximum permissible period
during which Employer V's plan could apply a preexisting condition
exclusion under paragraph (a)(1)(ii) would be the period from
October 13, 1998 through October 12, 1999, and this period would be
reduced under paragraph (a)(1)(iii) by E's days of creditable
coverage as of October 13, 1998.
(iii) Late enrollee means an individual whose enrollment in a plan
is a late enrollment.
(iv) Late enrollment means enrollment under a group health plan
other than on--
(A) The earliest date on which coverage can become effective under
the terms of the plan; or
[[Page 16960]]
(B) A special enrollment date for the individual. If an individual
ceases to be eligible for coverage under the plan by terminating
employment, and subsequently becomes eligible for coverage under the
plan by resuming employment, only eligibility during the individual's
most recent period of employment is taken into account in determining
whether the individual is a late enrollee under the plan with respect
to the most recent period of coverage. Similar rules apply if an
individual again becomes eligible for coverage following a suspension
of coverage that applied generally under the plan.
(v) Examples. The following examples illustrate the requirements of
this paragraph (a)(2):
Example 1: (i) Employee F first becomes eligible to be covered
by Employer W's group health plan on January 1, 1999, but elects not
to enroll in the plan until April 1, 1999. April 1, 1999 is not a
special enrollment date for F.
(ii) In this Example, F would be a late enrollee with respect to
F's coverage that became effective under the plan on April 1, 1999.
Example 2: (i) Same as Example 1, except that F does not enroll
in the plan on April 1, 1999 and terminates employment with Employer
W on July 1, 1999, without having had any health insurance coverage
under the plan. F is rehired by Employer W on January 1, 2000 and is
eligible for and elects coverage under Employer W's plan effective
on January 1, 2000.
(ii) In this Example, F would not be a late enrollee with
respect to F's coverage that became effective on January 1, 2000.
(b) Exceptions pertaining to preexisting condition exclusions--(1)
Newborns--(i) General rule. Subject to paragraph (b)(3) of this
section, a group health plan, and a health insurance issuer offering
group health insurance coverage, may not impose any preexisting
condition exclusion with regard to a child who, as of the last day of
the 30-day period beginning with the date of birth, is covered under
any creditable coverage. Accordingly, if a newborn is enrolled in a
group health plan (or other creditable coverage) within 30 days after
birth and subsequently enrolls in another group health plan without a
significant break in coverage, the other plan may not impose any
preexisting condition exclusion with regard to the child.
(ii) Example. The following example illustrates the requirements of
this paragraph (b)(1).
Example: (i) Seven months after enrollment in Employer W's group
health plan, Individual E has a child born with a birth defect.
Because the child is enrolled in Employer W's plan within 30 days of
birth, no preexisting condition exclusion may be imposed with
respect to the child under Employer W's plan. Three months after the
child's birth, E commences employment with Employer X and enrolls
with the child in Employer X's plan within 45 days of leaving
Employer W's plan. Employer X's plan imposes a 12-month exclusion
for any preexisting condition.
(ii) In this Example, Employer X's plan may not impose any
preexisting condition exclusion with respect to E's child because
the child was covered within 30 days of birth and had no significant
break in coverage. This result applies regardless of whether E's
child is included in the certificate of creditable coverage provided
to E by Employer W indicating 300 days of dependent coverage or
receives a separate certificate indicating 90 days of coverage.
Employer X's plan may impose a preexisting condition exclusion with
respect to E for up to 2 months for any preexisting condition of E
for which medical advice, diagnosis, care, or treatment was
recommended or received by E within the 6-month period ending on E's
enrollment date in Employer X's plan.
(2) Adopted Children. Subject to paragraph (b)(3) of this section,
a group health plan, and a health insurance issuer offering group
health insurance coverage, may not impose any preexisting condition
exclusion in the case of a child who is adopted or placed for adoption
before attaining 18 years of age and who, as of the last day of the 30-
day period beginning on the date of the adoption or placement for
adoption, is covered under creditable coverage. This rule does not
apply to coverage before the date of such adoption or placement for
adoption.
(3) Break in coverage. Paragraphs (b)(1) and (b)(2) of this section
no longer apply to a child after a significant break in coverage.
(4) Pregnancy. A group health plan, and a health insurance issuer
offering group health insurance coverage, may not impose a preexisting
condition exclusion relating to pregnancy as a preexisting condition.
(5) Special enrollment dates. For special enrollment dates relating
to new dependents, see Sec. 146.117(b).
(c) Notice of plan's preexisting condition exclusion. A group
health plan, and health insurance issuer offering group health
insurance under the plan, may not impose a preexisting condition
exclusion with respect to a participant or dependent of the participant
before notifying the participant, in writing, of the existence and
terms of any preexisting condition exclusion under the plan and of the
rights of individuals to demonstrate creditable coverage (and any
applicable waiting periods) as required by Sec. 146.115. The
description of the rights of individuals to demonstrate creditable
coverage includes a description of the right of the individual to
request a certificate from a prior plan or issuer, if necessary, and a
statement that the current plan or issuer will assist in obtaining a
certificate from any prior plan or issuer, if necessary.
Sec. 146.113 Rules relating to creditable coverage.
(a) General rules)--(1) Creditable coverage. For purposes of this
section, except as provided in paragraph (a)(2), the term creditable
coverage means coverage of an individual under any of the following:
(i) A group health plan as defined in Sec. 144.103.
(ii) Health insurance coverage as defined in Sec. 144.103 (whether
or not the entity offering the coverage is subject to the requirements
of this part and 45 CFR part 148, and without regard to whether the
coverage is offered in the group market, the individual market, or
otherwise).
(iii) Part A or part B of title XVIII of the Social Security Act
(Medicare).
(iv) Title XIX of the Social Security Act (Medicaid), other than
coverage consisting solely of benefits under section 1928 of the Social
Security Act (the program for distribution of pediatric vaccines).
(v) Title 10 U.S.C. Chapter 55 (medical and dental care for members
and certain former members of the uniformed services, and for their
dependents; for purposes of title 10 U.S.C. chapter 55, ``uniformed
services'' means the armed forces and the Commissioned Corps of the
National Oceanic and Atmospheric Administration and of the Public
Health Service).
(vi) A medical care program of the Indian Health Service or of a
tribal organization.
(vii) A State health benefits risk pool. For purposes of this
section, a State health benefits risk pool means--
(A) An organization qualifying under section 501(c)(26) of the
Code;
(B) A qualified high risk pool described in section 2744(c)(2) of
the PHS Act; or
(C) Any other arrangement sponsored by a State, the membership
composition of which is specified by the State and which is established
and maintained primarily to provide health insurance coverage for
individuals who are residents of such State and who, by reason of the
existence or history of a medical condition--
(1) Are unable to acquire medical care coverage for such condition
through insurance or from an HMO; or
(2) Are able to acquire such coverage only at a rate which is
substantially in
[[Page 16961]]
excess of the rate for such coverage through the membership
organization.
(viii) A health plan offered under title 5 U.S.C. chapter 89 (the
Federal Employees Health Benefits Program).
(ix) A public health plan. For purposes of this section, a public
health plan means any plan established or maintained by a State,
county, or other political subdivision of a State that provides health
insurance coverage to individuals who are enrolled in the plan.
(x) A health benefit plan under section 5(e) of the Peace Corps Act
(22 U.S.C. 2504(e)).
(2) Excluded coverage. Creditable coverage does not include
coverage consisting solely of coverage of excepted benefits (described
in Sec. 146.145).
(3) Methods of counting creditable coverage. For purposes of
reducing any preexisting condition exclusion period, as provided under
Sec. 146.111(a)(1)(iii), a group health plan, and a health insurance
issuer offering group health insurance coverage, determines the amount
of an individual's creditable coverage by using the standard method
described in paragraph (b), except that the plan, or issuer, may use
the alternative method under paragraph (c) with respect to any or all
of the categories of benefits described under paragraph (c)(3).
(b) Standard method--(1) Specific benefits not considered. Under
the standard method, a group health plan, and a health insurance issuer
offering group health insurance coverage, determines the amount of
creditable coverage without regard to the specific benefits included in
the coverage.
(2) Counting creditable coverage--(i) Based on days. For purposes
of reducing the preexisting condition exclusion period, a group health
plan, and a health insurance issuer offering group health insurance
coverage, determines the amount of creditable coverage by counting all
the days that the individual has under one or more types of creditable
coverage. Accordingly, if on a particular day, an individual has
creditable coverage from more than one source, all the creditable
coverage on that day is counted as one day. Further, any days in a
waiting period for a plan or policy are not creditable coverage under
the plan or policy.
(ii) Days not counted before significant break in coverage. Days of
creditable coverage that occur before a significant break in coverage
are not required to be counted.
(iii) Definition of significant break in coverage. A significant
break in coverage means a period of 63 consecutive days during all of
which the individual does not have any creditable coverage, except that
neither a waiting period nor an affiliation period is taken into
account in determining a significant break in coverage. (See section
731(b)(2)(iii) of ERISA and section 2723(b)(2)(iii) of the PHS Act,
which exclude from preemption State insurance laws that require a break
of more than 63 days before an individual has a significant break in
coverage for purposes of State law.)
(iv) Examples. The following examples illustrate how creditable
coverage is counted in reducing preexisting condition exclusion
periods:
Example 1: (i) Individual A work for Employer P and has
creditable coverage under Employer P's plan for 18 months before A's
employment terminates. A is hired by Employer O, and enrolls in
Employer O's group health plan, 64 days after the last date of
coverage under Employer P's plan. Employer O's plan has a 12-month
preexisting condition exclusion period.
(ii) In this Example, because A had a break in coverage of 63
days, Employer O's plan may disregard A's prior coverage and A may
be subject to a 12-month preexisting condition exclusion period.
Example 2: (i) Same facts as Example 1, except that A is hired
by Employer O, and enrolls in Employer O's plan, on the 63rd day
after the last date of coverage under Employer P's plan.
(ii) In this Example, A has a break in coverage of 62 days.
Because A's break in coverage is not a significant break in
coverage, Employer O's plan must count A's prior creditable coverage
for purposes of reducing the plan's preexisting condition exclusion
period as it applies to A.
Example 3: (i) Same facts as Example 1, except that Employer O's
plan provides benefits through an insurance policy that, as required
by applicable State insurance laws, defines a significant break in
coverage as 90 days.
(ii) In this Example, the issuer that provides group health
insurance to Employer O's plan must count A's period of creditable
coverage prior to the 63-day break.
Example 4: (i) Same facts as Example 3, except that Employer O's
plan is a self-insured plan, and thus is not subject to State
insurance laws.
(ii) In this Example, the plan is not governed by the longer
break rules under State insurance law and A's previous coverage may
be disregarded.
Example 5: (i) Individual B begins employment with Employer R 45
days after terminating coverage under a prior group health plan.
Employer R's group health plan has a 30-day waiting period before
coverage begins. B enrolls in Employer R's plan when first eligible.
(ii) In this Example, B does not have a significant break in
coverage for purposes of determining whether B's prior coverage must
be counted by Employer R's plan. B has only a 44-day break in
coverage because the 30-day waiting period is not taken into account
in determining a significant break in coverage.
Example 6: (i) Individual C works for Employer S and has
creditable coverage under Employer S's plan for 200 days before C's
employment is terminated and coverage ceases. C is then unemployed
for 51 days before being hired by Employer T. Employer T's plan has
a 3-month waiting period. C works for Employer T for 2 months and
then terminates employment. Eleven days after terminating employment
with Employer T, C begins working for Employer U. Employer U's plan
has no waiting period, but has a 6-month preexisting condition
exclusion period.
(ii) In this Example, C does not have a significant break in
coverage because, after disregarding the waiting period under
Employer T's plan, C had only a 62-day break in coverage (51 days
plus 11 days). Accordingly, C has 200 days of creditable coverage
and Employer U's plan may not apply its 6-month preexisting
condition exclusion period with respect to C.
Example 7: (i) Individual D terminates employment with Employer
V on January 13, 1998 after being covered for 24 months under
Employer V's group health plan. On March 17, the 63rd day without
coverage, D applies for a health insurance policy in the individual
market. D's application is accepted and the coverage is made
effective May 1.
(ii) In this Example, because D applied for the policy before
the end of the 63rd day, and coverage under the policy ultimately
became effective, the period between the date of application and the
first day of coverage is a waiting period, and no significant break
in coverage occurred even though the actual period without coverage
was 107 days.
Example 8: (i) Same facts as Example 7, except that D's
application for a policy in the individual market is denied.
(ii) In this Example, because D did not obtain coverage
following application, D incurred a significant break in coverage on
the 64th day.
(v) Other permissible counting methods--(A) General rule.
Notwithstanding any other provisions of this paragraph (b)(2), for
purposes of reducing a preexisting condition exclusion period (but not
for purposes of issuing a certificate under Sec. 146.115), a group
health plan, and a health insurance issuer offering group health
insurance coverage, may determine the amount of creditable coverage in
any other manner that is at least as favorable to the individual as the
method set forth in this paragraph (b)(2), subject to the requirements
of other applicable law.
(B) Example. The following example illustrates the requirements of
this paragraph (b)(2)(v):
Example: (1) Individual F has coverage under group health plan Y
from January 3, 1997 through March 25, 1997. F then becomes covered
by group health plan Z. F's enrollment date in Plan Z is May 1,
1997. Plan Z has a 12-month preexisting condition exclusion period.
(ii) In this Example, Plan Z may determine, in accordance with
the rules prescribed in
[[Page 16962]]
paragraph (b)(2) (i), (ii), and (iii), that F has 82 days of
creditable coverage (29 days in January, 28 days in February, and 25
days in March). Thus, the preexisting condition exclusion period
will no longer apply to F on February 8, 1998 (82 days before the
12-month anniversary of F's enrollment (May 1)). For administrative
convenience, however, Plan Z may consider that the preexisting
condition exclusion period will no longer apply to F on the first
day of the month (February 1).
(c) Alternative method--(1) Specific benefits considered. Under the
alternative method, a group health plan, or a health insurance issuer
offering group health insurance coverage, determines the amount of
creditable coverage based on coverage within any category of benefits
described in paragraph (c)(3) and not based on coverage for any other
benefits. The plan or issuer may use the alternative method for any or
all of the categories. The plan may apply a different preexisting
condition exclusion period with respect to each category (and may apply
a different preexisting condition exclusion period for benefits that
are not within any category). The creditable coverage determined for a
category of benefits applies only for purposes of reducing the
preexisting condition exclusion period with respect to that category.
An individual's creditable coverage for benefits that are not within
any category for which the alternative method is being used is
determined under the standard method of paragraph (b).
(2) Uniform application. A plan or issuer using the alternative
method is required to apply it uniformly to all participants and
beneficiaries under the plan or policy. The use of the alternative
method is set forth in the plan.
(3) Categories of benefits. The alternative method for counting
creditable coverage may be used for coverage for any of the following
categories of benefits:
(i) Mental health.
(ii) Substance abuse treatment.
(iii) Prescription drugs.
(iv) Dental care.
(v) Vision care.
(4) Plan notice. If the alternative method is used, the plan is
required to--
(i) State prominently that the plan is using the alternative method
of counting creditable coverage in disclosure statements concerning the
plan, and state this to each enrollee at the time of enrollment under
the plan; and
(ii) Include in these statements a description of the effect of
using the alternative method, including an identification of the
categories used.
(5) Issuer notice. With respect to health insurance coverage
offered by an issuer in the small or large group market, if the
insurance coverage uses the alternative method, the issuer states
prominently in any disclosure statement concerning the coverage, and to
each employer at the time of the offer or sale of the coverage, that
the issuer is using the alternative method, and include in such
statements a description of the effect of using the alternative method.
This applies separately to each type of coverage offered by the health
insurance issuer.
(6) Disclosure of information on previous benefits. See
Sec. 146.115(b) for special rules concerning disclosure of coverage to
a plan, or issuer, using the alternative method of counting creditable
coverage under this paragraph (c).
(7) Counting creditable coverage--(i) General. Under the
alternative method, the group health plan or issuer counts creditable
coverage within a category if any level of benefits is provided within
the category. Coverage under a reimbursement account or arrangement,
such as a flexible spending arrangement, (as defined in section
106(c)(2) of the Internal Revenue Code), does not constitute coverage
within any category.
(ii) Special rules. In counting an individual's creditable coverage
under the alternative method, the group health plan, or issuer, first
determines the amount of the individual's creditable coverage that may
be counted under paragraph (b), up to a total of 365 days of the most
recent creditable coverage (546 days for a late enrollee). The period
over which this creditable coverage is determined is referred to as the
``determination period.'' Then, for the category specified under the
alternative method, the plan or issuer counts within the category all
days of coverage that occurred during the determination period (whether
or not a significant break in coverage for that category occurs), and
reduces the individual's preexisting condition exclusion period for
that category by that number of days. The plan or issuer may determine
the amount of creditable coverage in any other reasonable manner,
uniformly applied, that is at least as favorable to the individual.
(iii) Example. The following example illustrates the requirements
of this paragraph (c)(7):
Example: (i) Individual D enrolls in Employer V's plan on
January 1, 2001. Coverage under the plan includes prescription drug
benefits. On April 1, 2001, the plan ceases providing prescription
drug benefits. D's employment with Employer V ends on January 1,
2002, after D was covered under Employer V's group health plan for
365 days. D enrolls in Employer Y's plan on February 1, 2001 (D's
enrollment date). Employer Y's plan uses the alternative method of
counting creditable coverage and imposes a 12-month preexisting
condition exclusion on prescription drug benefits.
(ii) In this Example, Employer Y's plan may impose a 275-day
preexisting condition exclusion with respect to D for prescription
drug benefits because D had the equivalent of 90-days of creditable
coverage relating to prescription drug benefits within D's
determination period.
Sec. 146.115 Certification and disclosure of previous coverage.
(a) Certificate of creditable coverage--(1) Entities required to
provide certificate--(i) General. A group health plan, and each health
insurance issuer offering group health insurance coverage under a group
health plan, is required to certificates of creditable coverage in
accordance with this paragraph (a).
(ii) Duplicate certificates not required. An entity required to
provide a certificate under this paragraph (a)(1) for an individual is
deemed to have satisfied the certification requirements for that
individual if another party provides the certificate, but only to the
extent that information relating to the individual's creditable
coverage and waiting or affiliation period is provided by the other
party. For example, in the case of a group health plan funded through
an insurance policy, the issuer is deemed to have satisfied the
certification requirement with respect to a participant or beneficiary
if the plan actually provides a certificate that includes the
information required under paragraph (a)(3) with respect to the
participant or beneficiary.
(iii) Special rule for group health plan. To the extent coverage
under a plan consists of group health insurance coverage, the plan is
deemed to have satisfied the certification requirements under this
paragraph (a)(1) if any issuer offering the coverage is required to
provide the certificates pursuant to an agreement between the plan and
the issuer. For example, if there is an agreement between an issuer and
the plan sponsor under which the issuer agrees to provide certificates
for individuals covered under the plan, and the issuer fails to provide
a certificate to an individual when the plan would have been required
to provide one under this paragraph (a), then the issuer, but not the
plan, violates the certification requirements of this paragraph (a).
(iv) Special rules for issuers--(A) Responsibility of issuer for
coverage period--(1) General rule. An issuer is
[[Page 16963]]
not required to provide information regarding coverage provided to an
individual by another party.
(2) Example. The following example illustrates the requirements of
this paragraph (a)(1)(iv)(A):
Example. (i) A plan offers coverage with an HMO option from one
issuer and an indemnity option from a different issuer. The HMO has
not entered into an agreement with the plan to provide certificates
as permitted under paragraph (a)(1)(iii) of this section.
(ii) In this Example, if an employee switches from the indemnity
option to the HMO option and later ceases to be covered under the
plan, any certificate provided by the HMO is not required to provide
information regarding the employee's coverage under the indemnity
option.
(B) Cessation of issuer coverage prior to cessation of coverage
under a plan--(1) General rule. If an individual's coverage under an
issuer's policy ceases before the individual's coverage under the plan
ceases, the issuer is required to provide sufficient information to the
plan (or to another party designated by the plan) to enable a
certificate to be provided by the plan (or other party), after
cessation of the individual's coverage under the plan, that reflects
the period of coverage under the policy. The provision of that
information to the plan will satisfy the issuer's obligation to provide
an automatic certificate for that period of creditable coverage for the
individual under paragraphs (a)(2)(ii) and (a)(3) of this section. In
addition, an issuer providing that information is required to cooperate
with the plan in responding to any request made under paragraph (b)(2)
of this section (relating to the alternative method of counting
creditable coverage). If the individual's coverage under the plan
ceases at the time the individual's coverage under the issuer's policy
ceases, the issuer must provide an automatic certificate under
paragraph (a)(2)(ii) of this section. An issuer may presume that an
individual whose coverage ceases at a time other than the effective
date for changing enrollment options has ceased to be covered under the
plan.
(2) Example. The following example illustrates the requirements of
this paragraph (a)(1)(iv)(B):
Example: (i) A group health plan provides coverage under an HMO
option and an indemnity option with a different issuer, and only
allows employees to switch on each January 1. Neither the HMO nor
the indemnity issuer has entered into an agreement with the plan to
provide automatic certificates as permitted under paragraph
(a)(2)(ii) of this section.
(ii) In this Example, if an employee switches from the indemnity
option to the HMO option on January 1, the issuer must provide the
plan (or a person designated by the plan) with appropriate
information with respect to the individual's coverage with the
indemnity issuer. However, if the individual's coverage with the
indemnity issuer ceases at a date other than January 1, the issuer
is instead required to provide the individual with an automatic
certificate.
(2) Individuals for whom a certificate must be provided; timing of
issuance--(i) Individuals. A certificate must be provided, without
charge, for participants or dependents who are or were covered under a
group health plan upon the occurrence of any of the events described in
paragraph (a)(2)(ii) and (a)(2)(iii) of this section.
(ii) Issuance of automatic certificates. The certificates described
in this paragraph (a)(2)(ii) of this section are referred to as
``automatic certificates.''
(A) Qualified beneficiaries upon a qualifying event. In the case of
an individual who is a qualified beneficiary (as defined in section
607(3) of ERISA, section 4980B(g)(1) of the Code, or section 2208 of
the PHS Act) entitled to elect COBRA continuation coverage, an
automatic certificate is required to be provided at the time the
individual would lose coverage under the plan in the absence of COBRA
continuation coverage or alternative coverage elected instead of COBRA
continuation coverage. A plan or issuer satisfies this requirement if
it provides the automatic certificate no later than the time a notice
is required to be furnished for a qualifying event under section 606 of
the Act, section 4980B(f)(6) of the Code and section 2206 of the PHS
Act (relating to notices required under COBRA).
(B) Other individuals when coverage ceases. In the case of an
individual who is not a qualified beneficiary entitled to elect COBRA
continuation coverage, an automatic certificate is required to be
provided at the time the individual ceases to be covered under the
plan. A plan or issuer satisfies this requirement if it provides the
automatic certificate within a reasonable time period thereafter. In
the case of an individual who is entitled to elect to continue coverage
under a State program similar to COBRA and who receives the automatic
certificate not later than the time a notice is required to be
furnished under the State program, the certificate is deemed to be
provided within a reasonable time period after the cessation of
coverage under the plan.
(C) Qualified beneficiaries when COBRA ceases. In the case of an
individual who is a qualified beneficiary and has elected COBRA
continuation coverage (or whose coverage has continued after the
individual became entitled to elect COBRA continuation coverage), an
automatic certificate is to be provided at the time the individual's
coverage under the plan ceases. A plan, or issuer, satisfies this
requirement if it provides the automatic certificate within a
reasonable time after coverage ceases (or after the expiration of any
grace period for nonpayment of premiums). An automatic certificate is
required to be provided to such an individual regardless of whether the
individual has previously received an automatic certificate under
paragraph (a)(2)(ii)(A) of this section.
(iii) Any individual upon request. Requests for certificates are
permitted to be made by, or on behalf of, an individual within 24
months after coverage ceases. Thus, for example, a plan in which an
individual enrolls may, if authorized by the individual, request a
certificate of the individual's creditable coverage on behalf of the
individual from a plan in which the individual was formerly enrolled.
After the request is received, a plan or issuer is required to provide
the certificate by the earliest date that the plan or issuer, acting in
a reasonable or prompt fashion can provide the certificate. A
certificate is to be provided under this paragraph (a)(2)(iii) even if
the individual has previously received a certificate under this
paragraph (a)(2)(iii) or an automatic certificate under paragraph
(a)(2)(ii) of this section.
(iv) Examples. The following examples illustrate the requirements
of this paragraph (a)(2).
Example 1: (i) Individual A terminates employment with Employer
O. A is a qualified beneficiary entitled to elect COBRA continuation
coverage under Employer O's group health plan. A notice of the
rights provided under COBRA is typically furnished to qualified
beneficiaries under the plan within 10 days after a covered employee
terminates employment.
(ii) In this Example, the automatic certificate may be provided
at the same time that A is provided the COBRA notice.
Example 2: (i) Same facts as Example 1, except that the
automatic certificate for A is not completed by the time the COBRA
notice is furnished to A.
(ii) In this Example, the automatic certificate may be provided
within the period permitted by law for the delivery of notices under
COBRA.
Example 3: (i) Employer R maintains an insured group health
plan. R has never had 20 employees and thus R's plan is not subject
to the COBRA continuation coverage provisions. However, R is in a
State that has a State program similar to COBRA. B terminates
employment with R and loses coverage under R's plan.
(ii) In this Example, the automatic certificate may be provided
not later than the time a notice is required to be furnished under
the State program.
[[Page 16964]]
Example 4: (i) Individual C terminates employment with Employer
S and receives both a notice of C's rights under COBRA and an
automatic certificate. C elects COBRA continuation coverage under
Employer S's group health plan. After four months of COBRA
continuation coverage and the expiration of a 30-day grace period,
S's group health plan determines that C's COBRA continuation
coverage has ceased due to failure to make a timely payment for
continuation coverage.
(ii) In this Example, the plan must provide an updated automatic
certificate to C within a reasonable time after the end of the grace
period.
Example 5: (i) Individual D is currently covered under the group
health plan of Employer T. D requests a certificate, as permitted
under paragraph (a)(2)(iii). Under the procedure for Employer T's
plan, certificates are mailed (by first class mail) 7 business days
following receipt of the request. This date reflects the earliest
date that the plan, acting in a reasonable and prompt fashion, can
provide certificates.
(ii) In this Example, the plan's procedure satisfies paragraph
(a)(2)(iii) of this section.
(3) Form and content of certificate--(i) Written certificate--(A)
General. Except as provided in paragraph (a)(3)(i)(B) of this section,
the certificate must be provided in writing (including any form
approved by HCFA as a writing).
(B) Other permissible forms. No written certificate is required to
be provided under this paragraph (a) with respect to a particular event
described in paragraphs (a)(2)(ii) and (a)(2)(iii) of this section if
all the following conditions are met:
(1) An individual is entitled to receive a certificate.
(2) The individual requests that the certificate be sent to another
plan or issuer instead of to the individual.
(3) The plan or issuer that would otherwise receive the certificate
agrees to accept the information in paragraph (a)(3) through means
other than a written certificate (for example, by telephone).
(4) The receiving plan or issuer receives the information from the
sending plan or issuer in such form within the time periods required
under paragraph (a)(2) of this section.
(ii) Required information. The certificate must include all of the
following:
(A) The date the certificate is issued.
(B) The name of the group health plan that provided the coverage
described in the certificate.
(C) The name of the participant or dependent with respect to whom
the certificate applies, and any other information necessary for the
plan providing the coverage specified in the certificate to identify
the individual, such as the individual's identification number under
the plan and the name of the participant if the certificate is for (or
includes) a dependent.
(D) The name, address, and telephone number of the plan
administrator or issuer required to provide the certificate.
(E) The telephone number to call for further information regarding
the certificate (if different from paragraph (a)(3)(ii)(D)).
(F) Either--
(1) A statement that an individual has at least 18 months (for this
purpose, 546 days is deemed to be 18 months) of creditable coverage,
disregarding days of creditable coverage before a significant break in
coverage, or
(2) The date any waiting period (and affiliation period, if
applicable) began and the date creditable coverage began.
(G) The date creditable coverage ended, unless the certificate
indicates that creditable coverage is continuing as of the date of the
certificate.
(iii) Periods of coverage under certificate. If an automatic
certificate is provided under paragraph (a)(2)(ii) of this section, the
period that must be included on the certificate is the last period of
continuous coverage ending on the date coverage ceased. If an
individual requests a certificate under paragraph (a)(2)(iii) of this
section, a certificate must be provided for each period of continuous
coverage ending within the 24-month period ending on the date of the
request (or continuing on the date of the request). A separate
certificate may be provided for each such period of continuous
coverage.
(iv) Combining information for families. A certificate may provide
information with respect to both a participant and the participant's
dependents if the information is identical for each individual or, if
the information is not identical, certificates may be provided on one
form if the form provides all the required information for each
individual and separately states the information that is not identical.
(v) Model certificate. The requirements of paragraph (a)(3)(ii) of
this section are satisfied if the plan or issuer provides a certificate
in accordance with a model certificate authorized by HCFA.
(vi) Excepted benefits; categories of benefits. No certificate is
required to be furnished with respect to excepted benefits described in
Sec. 146.145. In addition, the information in the certificate regarding
coverage is not required to specify categories of benefits described in
Sec. 146.113(c) (relating to the alternative method of counting
creditable coverage). However, if excepted benefits are provided
concurrently with other creditable coverage (so that the coverage does
not consist solely of excepted benefits), information concerning the
benefits may be required to be disclosed under paragraph (b) of this
section.
(4) Procedures--(i) Method of delivery. The certificate is required
to be provided to each individual described in paragraph (a)(2) of this
section or an entity requesting the certificate on behalf of the
individual. The certificate may be provided by first-class mail. If the
certificate or certificates are provided to the participant and the
participant's spouse at the participant's last known address, then the
requirements of this paragraph (a)(4) are satisfied with respect to all
individuals residing at that address. If a dependent's last known
address is different than the participant's last known address, a
separate certificate is required to be provided to the dependent at the
dependent's last known address. If separate certificates are being
provided by mail to individuals who reside at the same address,
separate mailings of each certificate are not required.
(ii) Procedure for requesting certificates. A plan or issuer must
establish a procedure for individuals to request and receive
certificates under paragraph (a)(2)(iii) of this section.
(iii) Designated recipients. If an automatic certificate is
required to be provided under paragraph (a)(2)(ii) of this section, and
the individual entitled to receive the certificate designates another
individual or entity to receive the certificate, the plan or issuer
responsible for providing the certificate is permitted to provide the
certificate to the designated party. If a certificate is required to be
provided upon request under paragraph (a)(2)(iii) of this section and
the individual entitled to receive the certificate designates another
individual or entity to receive the certificate, the plan or issuer
responsible for providing the certificate is required to provide the
certificate to the designated party.
(5) Special rules concerning dependent coverage--(i) Reasonable
efforts--(A) General rule. A plan or issuer is required to use
reasonable efforts to determine any information needed for a
certificate relating to the dependent coverage. In any case in which an
automatic certificate is required to be furnished with respect to a
dependent under paragraph (a)(2)(ii) of this section, no individual
certificate is required to be furnished until the plan or issuer knows
(or making reasonable efforts should know) of the
[[Page 16965]]
dependent's cessation of coverage under the plan.
(B) Example. The following example illustrates the requirements of
this paragraph (a)(5)(i):
Example: (i) A group health plan covers employees and their
dependents. The plan annually requests all employees to provide
updated information regarding dependents, including the specific
date on which an employee has a new dependent or on which a person
ceases to be a dependent of the employee.
(ii) In this Example, the plan has satisfied the standard in
this paragraph (a)(5)(i) that it make reasonable efforts to
determine the cessation of dependents' coverage and the related
dependent coverage information.
(ii) Special rules for demonstrating coverage. If a certificate
furnished by a plan or issuer does not provide the name of any
dependent of an individual covered by the certificate, the individual
may, if necessary, use the procedures described in paragraph (c)(4) of
this section for demonstrating dependent status. In addition, an
individual may, if necessary, use these procedures to demonstrate that
a child was enrolled within 30 days of birth, adoption, or placement
for adoption. See Sec. 146.111(b), under which such a child would not
be subject to a preexisting condition exclusion.
(iii) Transition rule for dependent coverage through June 30,
1998--(A) General. A group health plan or health insurance issuer that
cannot provide the names of dependents (or related coverage
information) for purposes of providing a certificate of coverage for a
dependent may satisfy the requirements of paragraph (a)(3)(ii)(C) of
this section by providing the name of the participant covered by the
group health plan or health insurance issuer and specifying that the
type of coverage described in the certificate is for dependent coverage
(for example, family coverage or employee-plus-spouse coverage).
(B) Certificates provided on request. For purposes of certificates
provided on the request of, or on behalf of, an individual under
paragraph (a)(2)(iii) of this section, a plan or issuer must make
reasonable efforts to obtain and provide the names of any dependent
covered by the certificate where such information is requested to be
provided. It does not include the name of any dependent of an
individual covered by the certificate, the individual may, if
necessary, use the procedures described in paragraph (c) of this
section for submitting documentation to establish that the creditable
coverage in the certificate applies to the dependent.
(C) Demonstrating a dependent's creditable coverage. See paragraph
(c)(4) of this section for special rules to demonstrate dependent
status.
(D) Duration. This paragraph (a)(5)(iii) is only effective for
certifications provided with respect to events occurring through June
30, 1998.
(6) Special certification rules--(i) Issuers. Issuers of group and
individual health insurance are required to provide certificates of any
creditable coverage they provide in the group or individual health
insurance market, even if the coverage is provided in connection with
an entity or program that is not itself required to provide a
certificate because it is not subject to the group market provisions of
this part, part 7 of subtitle B of title I of ERISA, or chapter 100 of
subtitle K of the Internal Revenue Code. This would include coverage
provided in connection with any of the following:
(A) Creditable coverage described in sections 2701 (c)(1)(G)
through (c)(1)(J) of the PHS Act (coverage under a State health
benefits risk pool, the Federal Employees Health Benefits Program, a
public health plan, and a health benefit plan under section 5(e) of the
Peace Corps Act),
(B) Coverage subject to section 2721(b)(1)(B) of the PHS Act
(requiring certificates by issuers offering health insurance coverage
in connection with any group health plan, including a church plan or a
governmental plan (including the Federal Employees Health Benefits
Program (FEHBP)).
(C) Coverage subject to section 2743 of the PHS Act applicable to
health insurance issuers in the individual market. (However, this
section does not require a certificate to be provided with respect to
short-term limited duration insurance, which is excluded from the
definition of ``individual health insurance coverage'' in 45 CFR
144.103 that is not provided in connection with a group health plan, as
described in paragraph (a)(6)(i)(B) of this section.)
(ii) Other entities. For special rules requiring that certain other
entities, not subject to this part, provide certificates consistent
with the rules in this section, see section 2791(a)(3) of the PHS Act
applicable to entities described in sections 2701(c)(1)(C), (D), (E),
and (F) of the PHS Act (relating to Medicare, Medicaid, CHAMPUS, and
Indian Health Service), section 2721(b)(1)(A) of the PHS Act applicable
to non-Federal governmental plans generally, section 2721(b)(2)(C)(ii)
of the PHS Act applicable to non-Federal governmental plans that elect
to be excluded from the requirements of subparts 1 and 3 of part A of
title XXVII of the PHS Act, and section 9805(a) of the Internal Revenue
Code applicable to group health plans, which includes church plans (as
defined in section 414(e) of the Internal Revenue Code).
(b) Disclosure of coverage to a plan, or issuer, using the
alternative method of counting creditable coverage--(1) General. If an
individual enrolls in a group health plan with respect to which the
plan, or issuer, uses the alternative method of counting creditable
coverage described in section 2701(c)(3)(B) of the PHS Act and
Sec. 146.113(c), the individual provides a certificate of coverage
under paragraph (a) of this section, and the plan or issuer in which
the individual enrolls so requests, the entity that issued the
certificate (the ``prior entity'') is required to disclose promptly to
a requesting plan or issuer (the ``requesting entity'') the information
set forth in paragraph (b)(2) of this section.
(2) Information to be disclosed. The prior entity is required to
identify to the requesting entity the categories of benefits with
respect to which the requesting entity is using the alternative method
of counting creditable coverage, and the requesting entity may identify
specific information that the requesting entity reasonably needs in
order to determine the individual's creditable coverage with respect to
any such category. The prior entity is required to disclose promptly to
the requesting entity the creditable coverage information so requested.
(3) Charge for providing information. The prior entity furnishing
the information under paragraph (b) of this section may charge the
requesting entity for the reasonable cost of disclosing such
information.
(c) Ability of an individual to demonstrate creditable coverage and
waiting period information--(1) General. The rules in this paragraph
(c) implement section 2701(c)(4) of the PHS Act, which permits
individuals to establish creditable coverage through means other than
certificates, and section 2701(e)(3) of the PHS Act, which requires the
Secretary to establish rules designed to prevent an individual's
subsequent coverage under a group health plan or health insurance
coverage from being adversely affected by an entity's failure to
provide a certificate with respect to that individual. If the accuracy
of a certificate is contested or a certificate is unavailable when
needed by the individual, the individual has the right to demonstrate
creditable coverage (and waiting or affiliation periods) through the
presentation of documents or other means. For example, the individual
may make such a demonstration when--
[[Page 16966]]
(i) An entity has failed to provide a certificate within the
required time period;
(ii) The individual has creditable coverage but an entity may not
be required to provide a certificate of the coverage under paragraph
(a) of this section;
(iii) The coverage is for a period before July 1, 1996;
(iv) The individual has an urgent medical condition that
necessitates a determination before the individual can deliver a
certificate to the plan; or
(v) The individual lost a certificate that the individual had
previously received and is unable to obtain another certificate.
(2) Evidence of creditable coverage--(i) Consideration of evidence.
A plan or issuer is required to take into account all information that
it obtains or that is presented on behalf of an individual to make a
determination, based on the relevant facts and circumstances, whether
an individual has creditable coverage and is entitled to offset all or
a portion of any preexisting condition exclusion period. A plan or
issuer shall treat the individual as having furnished a certificate
under paragraph (a) of this section if the individual attests to the
period of creditable coverage, the individual also presents relevant
corroborating evidence of some creditable coverage during the period,
and the individual cooperates with the plan's or issuer's efforts to
verify the individual's coverage. For this purpose, cooperation
includes providing (upon the plan's or issuer's request) a written
authorization for the plan or issuer to request a certificate on behalf
of the individual, and cooperating in efforts to determine the validity
of the corroborating evidence and the dates of creditable coverage.
While a plan or issuer may refuse to credit coverage where the
individual fails to cooperate with the plan's or issuer's efforts to
verify coverage, the plan or issuer may not consider an individual's
inability to obtain a certificate to be evidence of the absence of
creditable coverage.
(ii) Documents. Documents that may establish creditable coverage
(and waiting periods or affiliation periods) in the absence of a
certificate include explanations of benefit claims (EOB) or other
correspondence from a plan or issuer indicating coverage, pay stubs
showing a payroll deduction for health coverage, a health insurance
identification card, a certificate of coverage under a group health
policy, records from medical care providers indicating health coverage,
third party statements verifying periods of coverage, and any other
relevant documents that evidence periods of health coverage.
(iii) Other evidence. Creditable coverage (and waiting period or
affiliation period information) may also be established through means
other than documentation, such as by a telephone call from the plan or
provider to a third party verifying creditable coverage.
(iv) Example. The following example illustrates the requirements of
this paragraph (c)(2):
Example: (i) Employer X's group health plan imposes a
preexisting condition exclusion of 12 months on new enrollees under
the plan and uses the standard method of determining creditable
coverage. F fails to receive a certificate of prior coverage from
the self-insured group health plan maintained by F's prior employer,
Employer W, and requests a certificate. However, F (and Employer X's
plan, on F's behalf) is unable to obtain a certificate from Employer
W's plan. F attests that, to the best of F's knowledge, F had at
least 12 months of continuous coverage under Employer W's plan, and
that the coverage ended no earlier than F's termination of
employment from Employer W. In addition, F presents evidence of
coverage, such as an explanation of benefits for a claim that was
made during the relevant period.
(ii) In this Example, based solely on these facts, F has
demonstrated creditable coverage for the 12 months of coverage under
Employer W's plan in the same manner as if F had presented a written
certificate of creditable coverage.
(3) Demonstrating categories of creditable coverage. Procedures
similar to those described in this paragraph (c) apply in order to
determine an individual's creditable coverage with respect to any
category under paragraph (b) of this section (relating to determining
creditable coverage under the alternative method).
(4) Demonstrating dependent status. If, in the course of providing
evidence (including a certificate) of creditable coverage, an
individual is required to demonstrate dependent status, the group
health plan or issuer is required to treat the individual as having
furnished a certificate showing the dependent status if the individual
attests to such dependency and the period of such status and the
individual cooperates with the plan's or issuer's efforts to verify the
dependent status.
(d) Determination and notification of creditable coverage--(1)
Reasonable time period. In the event that a group health plan or health
insurance issuer offering group health insurance coverage receives
information in this section under paragraph (a) (certifications),
paragraph (b) (disclosure of information relating to the alternative
method), or paragraph (c) (other evidence of creditable coverage), the
entity is required, within a reasonable time period following receipt
of the information, to make a determination regarding the individual's
period of creditable coverage and notify the individual of the
determination in accordance with paragraph (d)(2) of this section.
Whether a determination and notification regarding an individual's
creditable coverage is made within a reasonable time period is
determined based on the relevant facts and circumstances. Relevant
facts and circumstances include whether a plan's application of a
preexisting condition exclusion would prevent an individual from having
access to urgent medical services.
(2) Notification to individual of period of preexisting condition
exclusion. A plan or issuer seeking to impose a preexisting condition
exclusion is required to disclose to the individual, in writing, its
determination of any preexisting condition exclusion period that
applies to the individual, and the basis for such determination,
including the source and substance of any information on which the plan
or issuer relied. In addition, the plan or issuer is required to
provide the individual with a written explanation of any appeal
procedures established by the plan or issuer, and with a reasonable
opportunity to submit additional evidence of creditable coverage.
However, nothing in this paragraph (d) or paragraph (c) of this section
prevents a plan or issuer from modifying an initial determination of
creditable coverage if it determines that the individual did not have
the claimed creditable coverage, provided that--
(i) A notice of the reconsideration is provided to the individual;
and
(ii) Until the final determination is made, the plan or issuer, for
purposes of approving access to medical services (such as a pre-surgery
authorization), acts in a manner consistent with the initial
determination.
(3) Examples. The following examples illustrate this paragraph (d):
Example: (i) Individual F terminates employment with Employer W
and, a month later, is hired by Employer X. Example 1: Individual G
is hired by Employer Y. Employer Y's group health plan imposes a
preexisting condition exclusion for 12 months with respect to new
enrollees and uses the standard method of determining credible
coverage. Employer Y's plan determines that G is subject to a 4-
month preexisting condition exclusion, based on a certificate of
creditable coverage that is provided by G to Employer Y's plan
indicating 8 months of coverage under G's prior group health plan.
[[Page 16967]]
(ii) In this Example, Employer Y's plan must notify G within a
reasonable period of time following receipt of the certificate that
G is subject to a 4-month preexisting condition exclusion beginning
on G's enrollment date in Y's plan.
Example 2: (i) Same facts as in Example 1, except that Employer
Y's plan determines that G has 14 months of creditable coverage
based on G's certificate indicating 14 months of creditable coverage
under G's prior plan.
(ii) In this Example, Employer Y's plan is not required to
notify G that G will not be subject to a preexisting condition
exclusion.
Example 3: (i) Individual H is hired by Employer Z. Employer Z's
group health plan imposes a preexisting condition exclusion for 12
months with respect to new enrollees and uses the standard method of
determining creditable coverage. H develops an urgent health
condition before receiving a certificate of prior coverage. H
attests to the period of prior coverage, presents corroborating
documentation of the coverage period, and authorizes the plan to
request a certificate on H's behalf.
(ii) In this Example, Employer Z's plan must review the evidence
presented by H. In addition, the plan must make a determination and
notify H regarding any preexisting condition exclusion period that
applies to H (and the basis of such determination) within a
reasonable time period following receipt of the evidence that is
consistent with the urgency of H's health condition (this
determination may be modified as permitted under paragraph (d)(2)).
Sec. 146.117 Special enrollment periods.
(a) Special enrollment for certain individuals who lose coverage--
(1) General. A group health plan, and a health insurance issuer
offering group health insurance coverage in connection with a group
health plan, is required to permit employees and dependents described
in this section in paragraph (a)(2), (a)(3), or (a)(4) to enroll for
coverage under the terms of the plan if the conditions in paragraph
(a)(5) are satisfied and the enrollment is requested within the period
described in paragraph (a)(6). The enrollment is effective at the time
described in paragraph (a)(7). The special enrollment rights under this
paragraph (a) apply without regard to the dates on which an individual
would otherwise be able to enroll under the plan.
(2) Special enrollment of an employee only. An employee is
described in this paragraph (a)(2) if the employee is eligible, but not
enrolled, for coverage under the terms of the plan and, when enrollment
was previously offered to the employee under the plan and was declined
by the employee, the employee was covered under another group health
plan or had other health insurance coverage.
(3) Special enrollment of dependents only. A dependent is described
in this paragraph (a)(3) if the dependent is a dependent of an employee
participating in the plan, the dependent is eligible, but not enrolled,
for coverage under the terms of the plan, and, when enrollment was
previously offered under the plan and was declined, the dependent was
covered under another group health plan or had other health insurance
coverage.
(4) Special enrollment of both employee and dependent. An employee
and any dependent of the employee are described in this paragraph
(a)(4) if they are eligible, but not enrolled, for coverage under the
terms of the plan and, when enrollment was previously offered to the
employee or dependent under the plan and was declined, the employee or
dependent was covered under another group health plan or had other
health insurance coverage.
(5) Conditions for special enrollment. An employee or dependent is
eligible to enroll during a special enrollment period if each of the
following applicable conditions is met:
(i) When the employee declined enrollment for the employee or the
dependent, the employee stated in writing that coverage under another
group health plan or other health insurance coverage was the reason for
declining enrollment. This paragraph (a)(5)(i) applies only if--
(A) The plan required such a statement when the employee declined
enrollment; and
(B) The employee is provided with notice of the requirement to
provide the statement in paragraph (a)(5)(i) (and the consequences of
the employee's failure to provide the statement) at the time the
employee declined enrollment.
(ii) (A) When the employee declined enrollment for the employee or
dependent under the plan, the employee or dependent had COBRA
continuation coverage under another plan and COBRA continuation
coverage under that other plan has since been exhausted; or
(B) If the other coverage that applied to the employee or dependent
when enrollment was declined was not under a COBRA continuation
provision, either the other coverage has been terminated as a result of
loss of eligibility for the coverage or employer contributions towards
the other coverage have been terminated. For this purpose, loss of
eligibility for coverage includes a loss of coverage as a result of
legal separation, divorce, death, termination of employment, reduction
in the number of hours of employment, and any loss of eligibility after
a period that is measured by reference to any of the foregoing. Thus,
for example, if an employee's coverage ceases following a termination
of employment and the employee is eligible for but fails to elect COBRA
continuation coverage, this is treated as a loss of eligibility under
this paragraph (a)(5)(ii)(B). However, loss of eligibility does not
include a loss due to failure of the individual or the participant to
pay premiums on a timely basis or termination of coverage for cause
(such as making a fraudulent claim or an intentional misrepresentation
of a material fact in connection with the plan). In addition, for
purposes of this paragraph (a)(5)(ii)(B), employer contributions
include contributions by any current or former employer (of the
individual or another person) that was contributing to coverage for the
individual.
(6) Length of special enrollment period. The employee is required
to request enrollment (for the employee or the employee's dependent, as
described in this section in paragraph (a)(2), paragraph (a)(3), or
paragraph (a)(4)) not later than 30 days after the exhaustion of the
other coverage described in paragraph (a)(5)(ii)(A) or termination of
the other coverage as a result of the loss of eligibility for the other
coverage for items described in paragraph (a)(5)(ii)(B) or following
the termination of employer contributions toward that other coverage.
The plan may impose the same requirements that apply to employees who
are otherwise eligible under the plan to immediately request enrollment
for coverage (for example, that the request be made in writing).
(7) Effective date of enrollment. Enrollment is effective not later
than the first day of the first calendar month beginning after the date
the completed request for enrollment is received.
(b) Special enrollment with respect to certain dependent
beneficiaries--(1) General. A group health plan that makes coverage
available with respect to dependents of a participant is required to
provide a special enrollment period to permit individuals described in
this section in paragraph (b)(2), (b)(3), (b)(4), (b)(5), or (b)(6) to
be enrolled for coverage under the terms of the plan if the enrollment
is requested within the time period described in paragraph (b)(7). The
enrollment is effective at the time described in paragraph (b)(8). The
special enrollment rights under this paragraph (b) apply without regard
to the dates on which an individual would otherwise be able to enroll
under the plan.
(2) Special enrollment of an employee who is eligible but not
enrolled. An individual is described in this paragraph (b)(2) if the
individual is an employee who is eligible, but not
[[Page 16968]]
enrolled, in the plan, the individual would be a participant but for a
prior election by the individual not to enroll in the plan during a
previous enrollment period, and a person becomes a dependent of the
individual through marriage, birth, or adoption or placement for
adoption.
(3) Special enrollment of a spouse of a participant. An individual
is described in this paragraph (b)(3) if either--
(i) The individual becomes the spouse of a participant; or
(ii) The individual is a spouse of the participant and a child
becomes a dependent of the participant through birth, adoption, or
placement for adoption.
(4) Special enrollment of an employee who is eligible but not
enrolled and the spouse of such employee. An employee who is eligible,
but not enrolled, in the plan, and an individual who is a dependent of
such employee, are described in this paragraph (b)(4) if the employee
would be a participant but for a prior election by the employee not to
enroll in the plan during a previous enrollment period, and either--
(i) The employee and the individual become married; or
(ii) The employee and individual are married and a child becomes a
dependent of the employee through birth, adoption or placement for
adoption.
(5) Special enrollment of a dependent of a participant. An
individual is described in this paragraph (b)(5) if the individual is a
dependent of a participant and the individual becomes a dependent of
such participant through marriage, birth, or adoption or placement for
adoption.
(6) Special enrollment of an employee who is eligible but not
enrolled and a new dependent. An employee who is eligible, but not
enrolled, in the plan, and an individual who is a dependent of the
employee, are described in this paragraph (b)(6) if the employee would
be a participant but for a prior election by the employee not to enroll
in the plan during a previous enrollment period, and the dependent
becomes a dependent of the employee through marriage, birth, or
adoption or placement for adoption.
(7) Length of special enrollment period. The special enrollment
period under paragraph (b)(1) of this section is a period of not less
than 30 days and begins on the date of the marriage, birth, or adoption
or placement for adoption (except that such period does not begin
earlier than the date the plan makes dependent coverage generally
available).
(8) Effective date of enrollment. Enrollment is effective--
(i) In the case of marriage, not later than the first day of the
first calendar month beginning after the date the completed request for
enrollment is received by the plan;
(ii) In the case of a dependent's birth, the date of such birth;
and
(iii) In the case of a dependent's adoption or placement for
adoption, the date of such adoption or placement for adoption.
(9) Example. The following example illustrates the requirements of
this paragraph (b):
Example. (i) Employee A is hired on September 3, 1998 by
Employer X, which has a group health plan in which A can elect to
enroll either for employee-only coverage, for employee-plus-spouse
coverage, or for family coverage, effective on the first day of any
calendar quarter thereafter. A is married and has no children. A
does not elect to join Employer X's plan (for employee-only
coverage, employee-plus-spouse coverage, or family coverage) on
October 1, 1998 or January 1, 1999. On February 15, 1999, a child is
placed for adoption with A and A's spouse.
(ii) In this Example, the conditions for special enrollment of
an employee with a new dependent under paragraph (b)(2) are
satisfied, the conditions for special enrollment of an employee and
a spouse with a new dependent under paragraph (b)(4) are satisfied,
and the conditions for special enrollment of an employee and a new
dependent under paragraph (b)(6) are satisfied. Accordingly,
Employer X's plan will satisfy this paragraph (b) if and only if it
allows A to elect, by filing the required forms by March 16, 1999,
to enroll in Employer X's plan either with employee-only coverage,
with employee-plus-spouse coverage, or with family coverage,
effective as of February 15, 1999.
(c) Notice of enrollment rights. On or before the time an employee
is offered the opportunity to enroll in a group health plan, the plan
is required to provide the employee with a description of the plan's
special enrollment rules under this section. For this purpose, the plan
may use the following model description of the special enrollment rules
under this section:
If you are declining enrollment for yourself or your dependents
(including your spouse) because of other health insurance coverage,
you may in the future be able to enroll yourself or your dependents
in this plan, provided that you request enrollment within 30 days
after your other coverage ends. In addition, if you have a new
dependent as a result of marriage, birth, adoption or placement for
adoption, you may be able to enroll yourself and your dependents,
provided that you request enrollment within 30 days after the
marriage, birth, adoption, or placement for adoption.
(d) Special enrollment date definition. (1) General rule. A special
enrollment date for an individual means any date in paragraph (a)(7) or
paragraph (b)(8) of this section on which the individual has a right to
have enrollment in a group health plan become effective under this
section.
(2) Examples. The following examples illustrate the requirements of
this paragraph (d):
Example 1: (i) Employer Y maintains a group health plan that
allows employees to enroll in the plan either (a) effective on the
first day of employment by an election filed within three days
thereafter, (b) effective on any subsequent January 1 by an election
made during the preceding months of November or December, or (c)
effective as of any special enrollment date described in this
section. Employee B is hired by Employer Y on March 15, 1998 and
does not elect to enroll in Employer Y's plan until January 31, 1999
when B loses coverage under another plan. B elects to enroll in
Employer Y's plan effective on February 1, 1999 by filing the
completed request form by January 31, 1999, in accordance with the
special rule set forth in paragraph (a).
(ii) In this Example, B has enrolled on a special enrollment
date because the enrollment is effective at a date described in
paragraph (a)(7).
Example 2: (i) Same facts as Example 1, except that B's loss of
coverage under the other plan occurs on December 31, 1998 and B
elects to enroll in Employer Y's plan effective on January 1, 1999
by filing the completed request form by December 31, 1998, in
accordance with the special rule set forth in paragraph (a).
(ii) In this Example, B has enrolled on a special enrollment
date because the enrollment is effective at a date described in
paragraph (a)(7) (even though this date is also a regular enrollment
date under the plan).
Sec. 146.119 HMO affiliation period as alternative to preexisting
condition exclusion.
(a) General. A group health plan offering health insurance coverage
through an HMO, or an HMO that offers health insurance coverage in
connection with a group health plan, may impose an affiliation period
only if each of the requirements in paragraph (b) of this section is
satisfied.
(b) Requirements for affiliation period. (1) No preexisting
condition exclusion is imposed with respect to any coverage offered by
the HMO in connection with the particular group health plan.
(2) No premium is charged to a participant or beneficiary for the
affiliation period.
(3) The affiliation period for the HMO coverage is applied
uniformly without regard to any health status-related factors.
[[Page 16969]]
(4) The affiliation period does not exceed 2 months (or 3 months in
the case of a late enrollee).
(5) The affiliation period begins on the enrollment date.
(6) The affiliation period for enrollment in the HMO under a plan
runs concurrently with any waiting period.
(c) Alternatives to affiliation period. An HMO may use alternative
methods in lieu of an affiliation period to address adverse selection,
as approved by the State insurance commissioner or other official
designated to regulate HMOs. Nothing in this section requires a State
to receive proposals for or approve alternatives to affiliation
periods.
Sec. 146.121 Prohibiting discrimination against participants and
beneficiaries based on a health status-related factor.
(a) In eligibility to enroll--(1) General. Subject to paragraph
(a)(2) of this section, a group health plan, and a health insurance
issuer offering group health insurance coverage in connection with a
group health plan, may not establish rules for eligibility (including
continued eligibility) of any individual to enroll under the terms of
the plan based on any of the following health status-related factors in
relation to the individual or a dependent of the individual:
(i) Health status.
(ii) Medical condition (including both physical and mental
illnesses), as defined in Sec. 146.102.
(iii) Claims experience.
(iv) Receipt of health care.
(v) Medical history.
(vi) Genetic information, as defined in Sec. 146.102.
(vii) Evidence of insurability (including conditions arising out of
acts of domestic violence).
(viii) Disability.
(2) No application to benefits or exclusions. To the extent
consistent with section 2701 of the Act and Sec. 146.111, paragraph
(a)(1) of this section shall not be construed--
(i) To require a group health plan, or a health insurance issuer
offering group health insurance coverage, to provide particular
benefits other than those provided under the terms of such plan or
coverage; or
(ii) To prevent such a plan or issuer from establishing limitations
or restrictions on the amount, level, extent, or nature of the benefits
or coverage for similarly situated individuals enrolled in the plan or
coverage.
(3) Construction. For purposes of paragraph (a)(1) of this section,
rules for eligibility to enroll include rules defining any applicable
waiting (or affiliation) periods for such enrollment and rules relating
to late and special enrollment.
4. Example. The following example illustrates the requirements of
this paragraph (a):
Example. (i) An employer sponsors a group health plan that is
available to all employees who enroll within the first 30 days of
their employment. However, individuals who do not enroll in the
first 30 days cannot enroll later unless they pass a physical
examination.
(ii) In this Example, the plan discriminates on the basis of one
or more health status-related factors.
(b) In premiums or contributions--(1) General. A group health plan,
and a health insurance issuer offering health insurance coverage in
connection with a group health plan, may not require an individual (as
a condition of enrollment or continued enrollment under the plan) to
pay a premium or contribution that is greater than the premium or
contribution for a similarly situated individual enrolled in the plan
based on any health status-related factor, in relation to the
individual or a dependent of the individual.
(2) Construction. Nothing in paragraph (b)(1) of this section can
be construed--
(i) To restrict the amount that an employer may be charged by an
issuer for coverage under a group health plan; or
(ii) To prevent a group health plan, and a health insurance issuer
offering group health insurance coverage, from establishing premium
discounts or rebates or modifying otherwise applicable copayments or
deductibles in return for adherence to a bona fide wellness program.
For purposes of this section, a bona fide wellness program is a program
of health promotion and disease prevention.
(3) Example. The following example illustrates the requirements of
this paragraph (b):
Example. (i) Plan X offers a premium discount to participants
who adhere to a cholesterol-reduction wellness program. Enrollees
are expected to keep a diary of their food intake over 6 weeks. They
periodically submit the diary to the plan physician who responds
with suggested diet modifications. Enrollees are to modify their
diets in accordance with the physician's recommendations. At the end
of the 6 weeks, enrollees are given a cholesterol test and those who
achieve a count under 200 receive a premium discount.
(ii) In this Example, because enrollees who otherwise comply
with the program may be unable to achieve a cholesterol count under
200 due to a health status-related factor, this is not a bona fide
wellness program and such discounts would discriminate impermissibly
based on one or more health status-related factors. However, if,
instead, individuals covered by the plan were entitled to receive
the discount for complying with the diary and dietary requirements
and were not required to pass a cholesterol test, the program would
be a bona fide wellness program.
Sec. 146.125 Effective dates.
(a) General effective dates--(1) Non-collectively-bargained plans.
Except as otherwise provided in this section, part A of title XXVII of
the PHS Act and this part applies with respect to group health plans,
including health insurance issuers offering health insurance coverage
in connection with group health plans, for plan years beginning after
June 30, 1997.
(2) Collectively bargained plans. Except as otherwise provided in
this section (other than paragraph (a)(1)), in the case of a group
health plan maintained under one or more collective bargaining
agreements between employee representatives and one or more employers
ratified before August 21, 1996, part A of title XXVII of the PHS Act
and this part does not apply to plan years beginning before the later
of July 1, 1997, or the date on which the last of the collective
bargaining agreements relating to the plan terminates (determined
without regard to any extension thereof agreed to after August 21,
1996). For these purposes, any plan amendment made under a collective
bargaining agreement relating to the plan, that amends the plan solely
to conform to any requirement of such part, is not treated as a
termination of the collective bargaining agreement.
(3) Preexisting condition exclusion periods for current employees.
(i) General rule. Any preexisting condition exclusion period permitted
under Sec. 146.111 is measured from the individual's enrollment date in
the plan. This exclusion period, as limited under Sec. 146.111, may be
completed before the effective date of the Health Insurance Portability
and Accountability Act of 1996 (HIPAA) for his or her plan. Therefore,
on the date the individual's plan becomes subject to part A of title
XXVII of the PHS Act, no preexisting condition exclusion may be imposed
with respect to an individual beyond the limitation in Sec. 146.111.
For an individual who has not completed the permitted exclusion period
under HIPAA, upon the effective date for his or her plan, the
individual may use credible coverage that the person had as of the
enrollment date to reduce the remaining preexisting condition exclusion
period applicable to the individual.
[[Page 16970]]
(ii) Examples. The following examples illustrate the requirements
of this paragraph (a)(3):
Example 1: (i) Individual A has been working for Employer X and
has been covered under Employer X's plan since March 1, 1997. Under
Employer X's plan, as in effect before January 1, 1998, there is no
coverage for any preexisting condition. Employer X's plan year
begins on January 1, 1998. A's enrollment date in the plan is March
1, 1997, and A has no credible coverage before this date.
(ii) In this Example, Employer X may continue to impose the
preexisting conditions exclusion under the plan through February 28,
1998 (the end of the 12-month period using anniversary dates).
Example 2: (i) Same facts as in Example 1, except that A's
enrollment date was August 1, 1996, instead of March 1, 1997.
(ii) In this Example, on January 1, 1998, Employer X's plan may
no longer exclude treatment for any preexisting condition that A may
have, however, because Employer X's plan is not subject to HIPAA
until January 1, 1998, A is not entitled to claim reimbursement for
expenses under the plan for treatments for any preexisting condition
received before January 1, 1998.
(b) Effective date for certification requirement--(1) General.
Subject to the transitional rule in Sec. 146.115(a)(5)(iii), the
certification rules of Sec. 146.115 apply to events occurring on or
after July 1, 1996.
(2) Period covered by certificate. A certificate is not required to
reflect coverage before July 1, 1996.
(3) No certificate before June 1, 1997. Notwithstanding any other
provision of this part, in no case is a certificate required to be
provided before June 1, 1997.
(c) Limitation on actions. No enforcement action is taken, under,
against a group health plan or health insurance issuer with respect to
a violation of a requirement imposed by part A of title XXVII of the
PHS Act before January 1, 1998, if the plan or issuer has sought to
comply in good faith with such requirements. Compliance with this part
is deemed to be good faith compliance with the requirements of part A
of title XXVII of the PHS Act.
(d) Transition rules for counting creditable coverage. An
individual who seeks to establish creditable coverage for periods
before July 1, 1996 is entitled to establish such coverage through the
presentation of documents or other means in accordance with the
provisions of Sec. 146.115(c). For coverage relating to an event
occurring before July 1, 1996, a group health plan and a health
insurance issuer is not subject to any penalty or enforcement action
with respect to the plan's or issuer's counting (or not counting) such
coverage if the plan or issuer has sought to comply in good faith with
the applicable requirements under Sec. 146.115(c).
(e) Transition rules for certification of creditable coverage--(1)
Certificates only upon request. For events occurring on or after July
1, 1996 but before October 1, 1996, a certificate is required to be
provided only upon a written request by or on behalf of the individual
to whom the certificate applies.
(2) Certificates before June 1, 1997. For events occurring on or
after October 1, 1996 and before June 1, 1997, a certificate must be
furnished no later than June 1, 1997, or any later date permitted under
Sec. 146.115(a)(2) (ii) and (iii).
(3) Optional notice--(i) General. This paragraph (e)(3) applies
with respect to events described in Sec. 146.115(a)(5)(ii), that occur
on or after October 1, 1996 but before June 1, 1997. A group health
plan or health insurance issuer offering group health coverage is
deemed to satisfy Secs. 146.115 (a)(2) and (a)(3) if a notice is
provided in accordance with the provisions of paragraphs (e)(3)(i)
through (e)(3)(iv) of this section.
(ii) Time of notice. The notice must be provided no later than June
1, 1997.
(iii) Form and content of notice. A notice provided under this
paragraph (e)(3) must be in writing and must include information
substantially similar to the information included in a model notice
authorized by HCFA. Copies of the model notice are available at the
following website--www.hcfa.gov (or call (410) 786-1565).
(iv) Providing certificate after request. If an individual requests
a certificate following receipt of the notice, the certificate must be
provided at the time of the request as set forth in
Sec. 146.115(a)(5)(iii).
(v) Other certification rules apply. The rules set forth in
Sec. 146.115(a)(4)(i) (method of delivery) and (a)(1) (entities
required to provide a certificate) apply with respect to the provision
of the notice.
Subpart C--[Reserved]
Subpart D--Preemption and Special Rules
Sec. 146.143 Preemption; State flexibility; construction.
(a) Continued applicability of State law with respect to health
insurance issuers. Subject to paragraph (b) of this section and except
as provided in paragraph (c) of this section, part A of title XXVII of
the PHS Act is not to be construed to supersede any provision of State
law which establishes, implements, or continues in effect any standard
or requirement solely relating to health insurance issuers in
connection with group health insurance coverage except to the extent
that such standard or requirement prevents the application of a
requirement of part A of title XXVII of the PHS Act.
(b) Continued preemption with respect to group health plans.
Nothing in part A of title XXVII of the PHS Act affects or modifies the
provisions of section 514 of ERISA with respect to group health plans.
(c) Special rules--(1) General. Subject to paragraph (c)(2) of this
section, the provisions of part A of title XXVII of the PHS Act
relating to health insurance coverage offered by a health insurance
issuer supersede any provision of State law which establishes,
implements, or continues in effect a standard or requirement applicable
to imposition of a preexisting condition exclusion specifically
governed by section 2701 of the PHS Act, which differs from the
standards or requirements specified in such section.
(2) Exceptions. Only in relation to health insurance coverage
offered by a health insurance issuer, the provisions of this part do
not supersede any provision of State law to the extent that such
provision--
(i) Shortens the period of time from the ``6-month period''
described in section 2701(a)(1) of the PHS Act and
Sec. 146.111(a)(1)(i) (for purposes of identifying a preexisting
condition);
(ii) Shortens the period of time from the ``12 months'' and ``18
months'' described in section 2701(a)(2) of the PHS Act and
Sec. 146.111(a)(1)(ii) (for purposes of applying a preexisting
condition exclusion period);
(iii) Provides for a greater number of days than the ``63-day
period'' described in sections 2701 (c)(2)(A) and (d)(4)(A) of the PHS
Act and Secs. 146.111(a)(1)(iii) and 146.113 (for purposes of applying
the break in coverage rules);
(iv) Provides for a greater number of days than the ``30-day
period'' described in sections 2701 (b)(2) and (d)(1) of the PHS Act
and Sec. 146.111(b) (for purposes of the enrollment period and
preexisting condition exclusion periods for certain newborns and
children that are adopted or placed for adoption);
(v) Prohibits the imposition of any preexisting condition exclusion
in cases not described in section 2701(d) of the PHS Act or expands the
exceptions described in that section;
(vi) Requires special enrollment periods in addition to those
required under section 2701(f) of the PHS Act; or
(vii) Reduces the maximum period permitted in an affiliation period
under section 701(g)(1)(B).
[[Page 16971]]
(d) Definitions--(1) State law. For purposes of this section the
term ``State law'' includes all laws, decisions, rules, regulations, or
other State action having the effect of law, of any State. A law of the
United States applicable only to the District of Columbia is treated as
a State law rather than a law of the United States.
(2) State. For purposes of this section the term ``State'' includes
a State, the Northern Mariana Islands, any political subdivisions of a
State or such Islands, or any agency or instrumentality of either.
Sec. 146.145 Special rules relating to group health plans.
(a) General exception for certain small group health plans. The
requirements of this part do not apply to any group health plan (and
group health insurance coverage offered in connection with a group
health plan) for any plan year if, on the first day of the plan year,
the plan has fewer than 2 participants who are current employees.
(b) Excepted benefits--(1) General. The requirements of subpart B
of this part do not apply to any group health plan (or any group health
insurance coverage offered in connection with a group health plan) in
relation to its provision of the benefits described in paragraph
(b)(2), (3), (4), or (5) of this section (or any combination of these
benefits).
(2) Benefits excepted in all circumstances. The following benefits
are excepted in all circumstances:
(i) Coverage only for accident (including accidental death and
dismemberment).
(ii) Disability income insurance.
(iii) Liability insurance, including general liability insurance
and automobile liability insurance.
(iv) Coverage issued as a supplement to liability insurance.
(v) Workers' compensation or similar insurance.
(vi) Automobile medical payment insurance.
(vii) Credit-only insurance (for example, mortgage insurance).
(viii) Coverage for on-site medical clinics.
(3) Limited excepted benefits--(1) General. Limited-scope dental
benefits, limited-scope vision benefits, or long-term care benefits are
excepted if they are provided under a separate policy, certificate, or
contract of insurance, or are otherwise not an integral part of the
plan, as defined in paragraph (b)(3)(ii) of this section.
(ii) Integral. For purposes of paragraph (b)(3)(i) of this section,
benefits are deemed to be an integral part of a plan unless a
participant has the right to elect not to receive coverage for the
benefits and, if the participant elects to receive coverage for the
benefits, the participant pays an additional premium or contribution
for that coverage.
(iii) Limited scope. Limited scope dental or vision benefits are
dental or vision benefits that are sold under a separate policy or
rider and that are limited in scope to a narrow range or type of
benefits that are generally excluded from hospital/medical/surgical
benefits packages.
(iv) Long-term care. Long-term care benefits are benefits that are
either--
(A) Subject to State long-term care insurance laws;
(B) For qualified long-term care insurance services, as defined in
section 7702B(c)(1) of the Internal Revenue Code, or provided under a
qualified long-term care insurance contract, as defined in section
7702B(b) of the Internal Revenue Code; or
(C) based on cognitive impairment or a loss of functional capacity
that is expected to be chronic.
(4) Noncoordinated benefits--(i) Excepted benefits that are not
coordinated. Coverage for only a specified disease or illness (for
example, cancer-only policies) or hospital indemnity or other fixed
dollar indemnity insurance (for example, $100/day) is expected only if
it meets each of the conditions specified in paragraph (b)(4)(ii) of
this section.
(ii) Conditions. Benefits are described in paragraph (b)(4)(i) of
this section only if--
(A) The benefits are provided under a separate policy, certificate,
or contract of insurance;
(B) There is no coordination between the provision of the benefits
and an exclusion of benefits under any group health plan maintained by
the same plan sponsor; and
(C) The benefits are paid with respect to an event without regard
to whether benefits are provided with respect to the event under any
group health plan maintained by the same plan sponsor.
(5) Supplemental benefits. The following benefits are excepted only
if they are provided under a separate policy, certificate, or contract
of insurance:
(i) Medicare supplemental health insurance (as defined under
section 1882(g)(1) of the Social Security Act; also known as Medigap or
MedSupp insurance),
(ii) Coverage supplemental to the coverage provided under Chapter
55, Title 10 of the United States Code (also known as CHAMPUS
supplemental programs), and
(iii) Similar supplemental coverage provided to coverage under a
group health plan.
Subpart E--Provisions Applicable to Only Health Insurance Issuers
Sec. 146.150 Guaranteed availability of coverage for employers in the
small group market.
(a) Issuance of coverage in the small group market. Subject to
paragraphs (c) through (f) of this section, each health insurance
issuer that offers health insurance coverage in the small group market
in a State must--
(1) Offer, to any small employer in the State, all products that
are approved for sale in the small group market and that the issuer is
actively marketing, and must accept any employer that applies for any
of those products; and
(2) Accept for enrollment under the coverage every eligible
individual (as defined in paragraph (b) of this section) who applies
for enrollment during the period in which the individual first becomes
eligible to enroll under the terms of the group health plan, or during
a special enrollment period, and may not impose any restriction on an
eligible individual, which is inconsistent with the nondiscrimination
provisions of Sec. 146.121 on an eligible individual being a
participant or beneficiary.
(b) Eligible individual defined. For purposes of this section, the
term ``eligible individual'' means an individual who is eligible--
(1) To enroll in group health insurance coverage offered to a group
health plan maintained by a small employer, in accordance with the
terms of the group health plan;
(2) For coverage under the rules of the health insurance issuer
which are uniformly applicable in the State to small employers in the
small group market, and
(3) For coverage in accordance with all applicable State laws
governing the issuer and the small group market.
(c) Special rules for network plans. (1) In the case of a health
insurance issuer that offers health insurance coverage in the small
group market through a network plan, the issuer may--
(i) Limit the employers that may apply for the coverage to those
with eligible individuals who live, work, or reside in the service area
for the network plan; and
(ii) Within the service area of the plan, deny coverage to
employers if the issuer has demonstrated to the applicable State
authority (if required by the State authority) that--
[[Page 16972]]
(A) It will not have the capacity to deliver services adequately to
enrollees of any additional groups because of its obligations to
existing group contract holders and enrollees; and
(B) It is applying this paragraph (c)(1) uniformly to all employers
without regard to the claims experience of those employers and their
employees (and their dependents) or any health status-related factor
relating to those employees and dependents.
(2) An issuer that denies health insurance coverage to an employer
in any service area in accordance with paragraph (c)(1)(ii) of this
section, may not offer coverage in the small group market within the
service area to any employer for a period of 180 days after the date
the coverage is denied. This paragraph (c)(2) does not limit the
issuer's ability to renew coverage already in force or relieve the
issuer of the responsibility to renew that coverage.
(3) Coverage offered within a service area after the 180-day period
specified in paragraph (c)(2) of this section is subject to the
requirements of this section.
(d) Application of financial capacity limits. (1) A health
insurance issuer may deny health insurance coverage in the small group
market if the issuer has demonstrated to the applicable State authority
(if required by the State authority) that it--
(i) Does not have the financial reserves necessary to underwrite
additional coverage; and
(ii) Is applying this paragraph (d)(1) uniformly to all employers
in the small group market in the State consistent with applicable State
law and without regard to the claims experience of those employers and
their employees (and their dependents) or any health status-related
factor relating to those employees and dependents.
(2) An issuer that denies group health insurance coverage to any
small employer in a State in accordance with paragraph (d)(1) of this
section may not offer coverage in connection with group health plans in
the small group market in the State for a period of 180 days after the
later of the date--
(i) The coverage is denied; or
(ii) The issuer demonstrates to the applicable State authority, if
required under applicable State law, that the issuer has sufficient
financial reserves to under write additional coverage.
(3) Paragraph (d)(2) of this section does not limit the issuer's
ability to renew coverage already in force or relieve the issuer of the
responsibility to renew that coverage.
(4) Coverage offered after the 180-day period specified in
paragraph (d)(2) of this section, is subject to the requirements of
this section.
(5) An applicable State authority may provide for the application
of this paragraph (d) of this section on a service-area-specific basis.
(e) Exception to requirement for failure to meet certain minimum
participation or contribution rules.
(1) Paragraph (a) of this section does not preclude a health
insurance issuer from establishing employer contribution rules or group
participation rules for the offering of health insurance coverage in
connection with a group health plan in the small group market, as
allowed under applicable State law.
(2) For purposes of paragraph (e)(1) of this section--
(i) The term ``employer contribution rule'' means a requirement
relating to the minimum level or amount of employer contribution toward
the premium for enrollment of participants and beneficiaries; and
(ii) The term ``group participation rule'' means a requirement
relating to the minimum number of participants or beneficiaries that
must be enrolled in relation to a specified percentage or number of
eligible individuals or employees of an employer.
(f) Exception for coverage offered only to bona fide association
members. Paragraph (a) of this section does not apply to health
insurance coverage offered by a health insurance issuer if that
coverage is made available in the small group market only through one
or more bona fide associations (as defined in 45 CFR 144.103).
Sec. 146.152 Guaranteed renewability of coverage for employers in the
group market.
(a) General rule. Subject to paragraphs (b) through (d) of this
section, a health insurance issuer offering health insurance coverage
in the small or large group market is required to renew or continue in
force the coverage at the option of the plan sponsor.
(b) Exceptions. An issuer may nonrenew or discontinue group health
insurance coverage offered in the small or large group market based
only on one or more of the following:
(1) Nonpayment of premiums. The plan sponsor as failed to pay
premiums or contributions in accordance with the terms of the health
insurance coverage, including any timeliness requirements.
(2) Fraud. The plan sponsor has performed an act or practice that
constitutes fraud or made an intentional misrepresentation of material
fact in connection with the coverage.
(3) Violation of participation or contribution rules. The plan
sponsor has failed to comply with a material plan provision relating to
any employer contribution or group participation rules permitted under
Sec. 146.150(e) in the case of the small group market or under
applicable State law in the case of the large group market.
(4) Termination of plan. The issuer is ceasing to offer coverage in
the market in accordance with paragraphs (c) and (d) of this section
and applicable State law.
(5) Enrollees' movement outside service area. For network plans,
there is no longer any enrollee under the group health plan who lives,
resides, or works in the service area of the issuer (or in the area for
which the issuer is authorized to do business); and in the case of the
small group market, the issuer applies the same criteria it would apply
in denying enrollment in the plan under Sec. 146.150(c).
(6) Association membership ceases. For coverage made available in
the small or large group market only through one or more bona fide
associations, if the employer's membership in the association ceases,
but only if the coverage is terminated uniformly without regard to any
health status-related factor relating to any covered individual.
(c) Discontinuing a particular product. In any case in which an
issuer decides to discontinue offering a particular product offered in
the small or large group market, that product may be discontinued by
the issuer in accordance with applicable State law in the particular
market only if--
(1) The issuer provides notice in writing to each plan sponsor
provided that particular product in that market (and to all
participants and beneficiaries covered under such coverage) of the
discontinuation at least 90 days before the date the coverage will be
discontinued;
(2) The issuer offers to each plan sponsor provided that particular
product the option, on a guaranteed issue basis, to purchase all (or,
in the case of the large group market, any) other health insurance
coverage currently being offered by the issuer to a group health plan
in that market; and
(3) In exercising the option to discontinue that product and in
offering the option of coverage under paragraph (c)(2) of this section,
the issuer acts uniformly without regard to the claims experience of
those sponsors or any health status-related factor relating to any
participants or beneficiaries covered or new participants or
beneficiaries who may become eligible for such coverage.
[[Page 16973]]
(d) Discontinuing all coverage. An issuer may elect to discontinue
offering all health insurance coverage in the small or large group
market or both markets in a State in accordance with applicable State
law only if--
(1) The issuer provides notice in writing to the applicable State
authority and to each plan sponsor (and all participants and
beneficiaries covered under the coverage) of the discontinuation at
least 180 days prior to the date the coverage will be discontinued; and
(2) All health insurance policies issued or delivered for issuance
in the State in the market (or markets) are discontinued and not
renewed.
(e) Prohibition on market reentry. An issuer who elects to
discontinue offering all health insurance coverage in a market (or
markets) in a State as described in paragraph (d) of this section may
not issue coverage in the market (or markets) and State involved during
the 5-year period beginning on the date of discontinuation of the last
coverage not renewed.
(f) Exception for uniform modification of coverage. Only at the
time of coverage renewal may issuers modify the health insurance
coverage for a product offered to a group health plan in the--
(1) Large group market; and
(2) Small group market if, for coverage available in this market
(other than only through one or more bona fide associations), the
modification is consistent with State law and is effective uniformly
among group health plans with that product.
(g) Application to coverage offered only through associations. In
the case of health insurance coverage that is made available by a
health insurance issuer in the small or large group market to employers
only through one or more associations, the reference to ``plan
sponsor'' is deemed, with respect to coverage provided to an employer
member of the association, to include a reference to such employer.
Sec. 146.160 Disclosure of information.
(a) General rule. In connection with the offering of any health
insurance coverage to a small employer, a health insurance issuer is
required to--
(1) Make a reasonable disclosure to the employer, as part of its
solicitation and sales materials, of the availability of information
described in paragraph (b) of this section; and
(2) Upon request of the employer, provide that information to the
employer.
(b) Information described. Subject to paragraph (d) of this
section, information that must be provided under paragraph (a)(2) of
this section is information concerning the following:
(1) Provisions of coverage relating to the following:
(i) The issuer's right to change premium rates and the factors that
may affect changes in premium rates.
(ii) Renewability of coverage.
(iii) Any preexisting condition exclusion, including use of the
alternative method of counting creditable coverage.
(iv) Any affiliation periods applied by HMOs.
(v) The geographic areas served by HMOs.
(2) The benefits and premiums available under all health insurance
coverage for which the employer is qualified, under applicable State
law. See Sec. 146.150(b) through (f) for allowable limitations on
product availability.
(c) Form of information. The information must be described in
language that is understandable by the average small employer, with a
level of detail that is sufficient to reasonably inform small employers
of their rights and obligations under the health insurance coverage.
This requirement is satisfied if the issuer provides each of the
following with respect to each product offered:
(1) An outline of coverage. For purposes of this section, outline
of coverage means a description of benefits in summary form.
(2) The rate or rating schedule that applies to the product (with
and without the preexisting condition exclusion or affiliation period).
(3) The minimum employer contribution and group participation rules
that apply to any particular type of coverage.
(4) In the case of a network plan, a map or listing of counties
served.
(5) Any other information required by the State.
(d) Exception. An issuer is not required to disclose any
information that is proprietary and trade secret information under
applicable law.
Subpart F--Exclusion of Plans and Enforcement
Sec. 146.180 Treatment on non-Federal governmental plans.
The plan sponsor of a non-Federal governmental plan may elect to be
exempted from any or all of the requirements identified in paragraph
(a) of this section with respect to any portion of its plan that is not
provided through health insurance coverage, if the election complies
with the requirements of paragraphs (b) and (c) of this section. The
election remains in effect for the period described in paragraph (d) of
this section.
(a) Exemption from requirements. The election described in this
paragraph (a) exempts a non-Federal governmental plan from the
following requirements:
(1) Limitations on preexisting condition exclusion periods
(Sec. 146.111).
(2) Special enrollment periods for individuals (and dependents)
losing other coverage (Sec. 146.117).
(3) Prohibitions against discriminating against individual
participants and beneficiaries based on health status (Sec. 146.121).
(4) Standards relating to benefits for mothers and newborns
(section 2704 of the PHS Act).
(5) Parity in the application of certain limits to mental health
benefits (section 2705 of the PHS Act).
(b) Form and manner of election. (1) The election must be in
writing.
(2) The election document must include as an attachment a copy of
the notice described in paragraphs (f) and (g) of this section.
(3) The election document must state the name of the plan and the
name and address of the plan administrator.
(4) The election document must either state that the plan does not
include health insurance coverage, or identify which portion of the
plan is not funded through insurance.
(5) The election must be made in conformity with all the plan
sponsor's rules, including any public hearing, if required, and the
election document must certify that the person signing the election
document, including if applicable a third party plan administrator, is
legally authorized to do so by the plan sponsor.
(6) The election document must be signed by the person described in
paragraph (b)(5) of this section.
(c) Timing of election. (1) For plans not subject to collective
bargaining agreements, the election must be received by HCFA by the day
preceding the beginning date of the plan year.
(2) For plans provided under a collective bargaining agreement, the
election must be received by HCFA no later than 30 days after--
(i) The date of the agreement between the governmental entity and
union officials; or
(ii) If applicable, ratification of the agreement.
(3) HCFA may extend the deadlines specified under paragraphs (c)(1)
and (c)(2) of this section for good cause.
(4) If the plan sponsor fails to file a timely election in
accordance with paragraphs (c)(1) through (c)(3) of this section, the
plan is subject to the
[[Page 16974]]
requirements described in paragraph (a) for the entire plan year, or,
in the case of a plan provided under a collective bargaining agreement,
for the term of the agreement.
(d) Period of election. An election under paragraph (a) of this
section applies--
(1) For a single specified plan year; or
(2) In the case of a plan provided under a collective bargaining
agreement, for the term of the agreement. (For purposes of this
section, if a collective bargaining agreement expires during the
bargaining process for a new agreement, and the parties agree that the
prior bargaining agreement continues in effect until the new agreement
takes effect, the ``term of the agreement'' is deemed to continue until
the new agreement takes effect.)
(e) Subsequent elections. An election under this section may be
extended through subsequent elections.
(f) Notice to participants. (1) A plan that makes the election
described in this section notifies the participant of the election, and
explains the consequences of the election. This notice must be
provided--
(i) to each participant at the time of enrollment under the plan;
and
(ii) To all participants on an annual basis.
(2) The notice shall be in writing, and must include the
information specified in paragraph (g) of this section.
(3) The notice shall be provided to each participant individually.
(4) Subject to paragraph (g) of this section, the requirements of
paragraphs (f)(1) through (f)(3) of this section are considered to have
been met if the notice is prominently printed in the summary plan
document, or equivalent document, and each participant receives a copy
of that document at the time of enrollment and annually thereafter.
(g) Notice content. The notice must contain at least the following
information:
(1) A statement that, in general, Federal law imposes upon group
health plans the requirements described in paragraph (a) of this
section (which must be individually described in the notice).
(2) A statement that Federal law gives the plan sponsor of a non-
Federal governmental plan the right to exempt the plan in whole or in
part from the requirements described in paragraph (a) of this section,
and that the plan sponsor has elected to do so.
(3) A statement identifying which parts of the plan are subject to
the election, and each of the requirements of paragraph (a) of this
section from which the plan sponsor has elected to be exempted.
(4) If the plan chooses to provide any of the protections of
paragraph (a) of this section voluntarily, or is required to under
State law, a statement identifying which protections apply.
(h) Certification and disclosure of creditable coverage.
Notwithstanding an election under this section, a non-Federal
governmental plan must provide for certification and disclosure of
creditable coverage under the plan with respect to participants and
their dependents in accordance with Sec. 146.115.
(i) Effect of failure to comply with election requirements. (1)
Subject to paragraph (i)(2) of this section, a plan's failure to comply
with the requirements of paragraphs (f) through (h) of this section
invalidates an election made under this section.
(2) Upon a finding by HCFA that a non-Federal governmental plan has
failed to comply with the requirements of paragraphs (f) through (h),
and has failed to correct the noncompliance within 30 days (as provided
in Sec. 146.184(d) (7)(iii)(B)), HCFA notifies the plan that its
election has been invalidated and that it is subject to the
requirements of this part.
(3) A non-Federal governmental plan described in paragraph (i)(2)
of this section that fails to comply with the requirements of this part
is subject to Federal enforcement by HCFA under Sec. 146.184, including
appropriate civil money penalties.
Sec. 146.184 Enforcement.
(a) Enforcement with respect to group health plans--(1) Scope. In
general, the requirements of the Health Insurance Portability and
Accountability Act that apply to group health plans are contained in
part 7 of subtitle B of title I of ERISA, and in subtitle K of the
Internal Revenue Code. They are enforced by the Secretary of Labor
under part 5 of subtitle B of title I of ERISA, and the Secretary of
the Treasury under 26 U.S.C. 4980D. However, the provisions that apply
to group health plans that are non-Federal governmental plans are
contained in title XXVII of the PHS Act, and enforced by HCFA. The
provisions of title XXVII that apply to health insurance issuers that
offer coverage in connection with any group health plan are enforced in
the first instance by the States. If HCFA determines under paragraph
(b) of this section that a State is not substantially enforcing the
provisions, HCFA enforces them under paragraph (d) of this section.
(2) Non-Federal governmental plans. Requirements of this part that
apply to group health plans that are non-Federal governmental plans
(sponsored by a State or local governmental entity) are enforced by
HCFA, as provided in paragraph (d) of this section.
(b) Enforcement with respect to health insurance issuers--(1)
General rule--enforcement by State. Except as provided in paragraph
(b)(2) of this section, each State enforces the requirements of this
part with respect to health insurance issuers that issue, sell, renew
or offer health insurance coverage in the small or large group markets
in the State.
(2) Enforcement by HCFA. HCFA enforces the provisions of this part
with respect to health insurance issuers, using the procedures
described in paragraph (d) of this section, only in the following
circumstances:
(i) State election. If the State chooses not to enforce the Federal
requirements.
(ii) State failure to enforce. If HCFA makes a determination under
paragraph (c) of this section that a State has failed to substantially
enforce one or more provisions of this part.
(c) Determination by Administrator. if HCFA receives information,
through a complaint or any other means, that raises a question whether
a State is substantially enforcing one or more provisions of this part,
HCFA follows the procedures set forth in this section.
(1) Verification of exhaustion. HCFA makes a threshold
determination of whether the individuals affected by the alleged
failure to enforce have made a reasonable effort to exhaust any State
remedies. This may involve informal contact with State officials about
the questions raised.
(2) Notice to the State. If HCFA is satisfied that there is a
reasonable question whether there has been a failure to substantially
enforce, HCFA provides notice as specified in paragraph (c)(3) of this
section, to the following State officials:
(i) The Governor or chief executive officer of the State.
(ii) The insurance commissioner or chief insurance regulatory
official.
(iii) The official responsible for regulating HMOs, if different
than paragraph (c)(2)(ii) of this section, but only if the alleged
failure involves HMOs.
(3) Form and content of notice. The notice described in paragraph
(c)(2) is in writing, and does the following:
(i) Identifies the provision or provisions of the statute and
regulations that have allegedly been violated;
(ii) Describes the facts of the specific violations.
[[Page 16975]]
(iii) Explains that the consequence of a failure to substantially
enforce any provisions(s) is that HCFA enforces the provision(s) in
accordance with paragraph (d) of this section.
(iv) Advises the State that it has 45 days to respond to the
notice, unless the time is extended as described in paragraph (c)(3) of
this section, and that the response should include any information that
the State wishes HCFA to consider in making the preliminary
determination described in paragraph (c)(5) of this section.
(4) Good cause. The time for responding can be extended for good
cause. Examples of good cause include an agreement between HCFA and the
State that there should be a public hearing on the State's enforcement,
or evidence that the State is undertaking expedited enforcement
activities.
(5) Preliminary determination. If at the end of the 45-day period,
and any extension, the State has not established to HCFA's satisfaction
that it is substantially enforcing the provision or provisions
described in the notice, HCFA takes the following actions:
(i) Consults with the officials described in paragraph (c)(1) of
this section.
(ii) Notifies the State of HCFA's preliminary determination that
the State has failed to enforce the provisions, and that the failure is
continuing.
(iii) Permits the State a reasonable opportunity to show evidence
of substantial enforcement.
(6) Final determination. If, after providing notice and the
opportunity to enforce under paragraph (c)(5) of this section, HCFA
finds that the failure to enforce has not been corrected, HCFA sends
the State a written notice of that final determination. The notice--
(i) Identifies the provisions with respect to which HCFA is taking
over enforcement;
(ii) States the effective date of HCFA's enforcement;
(iii) Informs the State of the mechanism for establishing in the
future that it has corrected the failure, and has begun enforcement.
This mechanism will include transition procedures for ending HCFA's
enforcement.
(d) Civil money penalties--(1) General rule. If any health
insurance issuer that is subject to HCFA's enforcement authority under
paragraph (b)(2) of this section, or any non-Federal governmental plan
(or employer that sponsors a non-Federal governmental plan) that is
subject to HCFA's enforcement authority under paragraph (a)(2) of this
section, fails to comply with any applicable requirement of this part,
if may be subject to a civil money penalty as described in this
paragraph (d).
(2) Complaint. Any person who is entitled to any right under this
part, and who believes that the right is being denied as a result of
any failure described in paragraph (d)(1) of this section, may file a
complaint with HCFA. Based on the complaint, HCFA identifies which
entities are potentially responsible for the violation, in accordance
with paragraph (d)(3) of this section.
(3) Determination of responsible entity. If a failure to comply is
established under this section, the responsible entity, as determined
under this paragraph, is liable for the penalty. If the violation is
due to a failure by--
(i) A health insurance issuer, the issuer is the responsible
entity;
(ii) A group health plan that is a non-Federal governmental plan
sponsored by a single employer, the employer is the responsible entity;
(iii) A group health plan that is a non-Federal governmental plan
sponsored by two or more employers, the plan is the responsible entity.
(4) Notice to responsible entities. HCFA provides notice to the
appropriate entity or entities identified under paragraph (d)(3) of
this section that a complaint or other information has been received
alleging a violation of this part. The notice--
(i) Describes the substance of any complaint or other allegation;
(ii) Provides 30 days for the responsible entity or entities to
respond with additional information. This can include--
(A) Information refuting that there has been a violation;
(B) Evidence that the entity did not know, and exercising due
diligence could not have known, of the violation;
(C) Evidence of a previous record of compliance.
(5) Notice to other regulators. HCFA notifies the State if the
alleged violation involves a health insurance issuer under its
jurisdiction.
(6) Notice of assessment. If, based on the information provided in
the complaint, as well as any information submitted by the entity or
any other parties, HCFA proposes to assess a civil money penalty, HCFA
sends written notice of assessment to the responsible entity or
entities by certified mail, return receipt requested. The notice
contains the following information:
(i) A reference to the provision that was violated.
(ii) The name or names of the individuals with respect to whom a
violation occurred, with relevant identification numbers.
(iii) The facts that support the finding of a violation, and the
initial date of the violation.
(iv) The amount of the proposed penalty as of the date of the
notice.
(v) The basis for calculating the penalty, including consideration
of prior compliance.
(vi) Instructions for responding to the notice, including--
(A) A specific statement of the respondent's right to a hearing;
and
(B) A statement that failure to request a hearing within 30 days
permits the imposition of the proposed penalty, without right of
appeal.
(7) Amount of penalty--(i) Maximum daily penalty. The penalty
cannot exceed $100 for each day, for each responsible entity, for each
individual with respect to whom such a failure occurs.
(ii) Standard for calculating daily penalty. In calculating the
amount of the penalty HCFA takes into account the responsible entity's
previous record of compliance and the gravity of the violation.
(iii) Limitations on penalties. No civil money penalty is imposed:
(A) With respect to a period during which a failure existed, but
none of the responsible entities knew, or exercising reasonable
diligence would have known, that the failure existed.
(B) With respect to the period occurring immediately after the
period described in paragraph (d)(7)(iii)(A) of this section, if the
failure--
(1) Was due to reasonable cause and was not due to willful neglect;
and
(2) Was corrected within 30 days of the first day that any of the
entities against whom the penalty would be imposed knew, or exercising
reasonable diligence would have known, that the failure existed.
(C) The burden is on the responsible entity or entities to
establish to the satisfaction of HCFA that none of the entities knew,
or exercising reasonable diligence could have known that the failure
existed.
(8) Hearings--(i) Right to a hearing. Any entity against which a
penalty is assessed may request a hearing by HCFA. The request must be
in writing, and must be postmarked within 30 days after the date the
notice of assessment is issued.
(ii) Failure to request a hearing. If no hearing is requested under
this paragraph, the notice of assessment constitutes a final order that
is not subject to appeal.
(iii) Parties to the hearing. Parties to the hearing include any
responsible entities, as well as the party who filed the complaint. An
informational notice
[[Page 16976]]
is also sent to the State, or to the Secretaries of Labor and the
Treasury, as appropriate.
(iv) Initial agency decision. The initial agency decision is made
by an administrative law judge. The decision is made on the record
according to section 554 of title 5, United States Code. The decision
becomes a final, appealable order after 30 days, unless it is modified
in accordance with paragraph (d)(8)(v) of this section.
(v) Review by HCFA. HCFA may modify or vacate the initial agency
decision. Notice of intent to modify or vacate the decision is issued
to the parties within 30 days after the date of the decision of the
administrative law judge.
(9) Judicial review--(i) Filing of action for review. Any entity
against whom a final order imposing a civil money penalty is entered in
accordance with paragraph (d)(8) of this section may obtain review in
the United States District Court for any district in which the entity
is located or the United States District Court for the District of
Columbia by--
(A) Filing a notice of appeal in that court within 30 days from the
date of a final order; and
(B) Simultaneously sending a copy of the notice of appeal by
registered mail to HCFA.
(ii) Certification of administrative record. HCFA will promptly
certify and file with the court the record upon which the penalty was
imposed.
(iii) Standard of review. The findings of HCFA may not be set aside
unless they are found to be unsupported by substantial evidence, as
provided by Section 706(2) (E) of title 5, United States Code.
(iv) Appeal. Any final decision, order or judgement of the district
court concerning the Administrator's review is subject to appeal as
provided in Chapter 83 of Title 28, United States Code.
(10) Failure to pay assessment, maintenance of action--(i) Failure
to pay assessment. If any entity fails to pay an assessment after it
becomes a final order under paragraphs (d)(7)(i)(A) or (d)(7)(iii) of
this section, or after the court has entered final judgment in favor of
HCFA, HCFA refers the matter to the Attorney General, who brings an
action in the appropriate United States district court to recover the
amount assessed.
(ii) Final order not subject to review. In an action brought under
paragraph (d)(10)(i) of this section, the validity and appropriateness
of the final order described in paragraphs (d)(7)(i)(A) or (d)(7)(iii)
of this section is not subject to review.
(11) Use of penalty funds. (i) Any funds collected under this
section will be paid to HCFA or other office imposing the penalty.
(ii) The funds will be available without appropriation and until
expended.
(iii) The funds may only be used for the purpose of enforcing the
provisions with respect to which the penalty was imposed.
PARTS 147--199 [RESERVED]
Authority: Secs. 2701 through 2723, 2791, and 2792 of the PHS
Act, 42 U.S.C. 300gg-41 through 300gg-63, 300gg-91, and 300gg-92.
Dated: March 25, 1997.
Bruce C. Vladeck,
Administrator, Health Care Financing Administration.
Dated: March 25, 1997.
Donna E. Shalala,
Secretary.
[FR Doc. 97-8275 Filed 4-1-97; 12:42 pm]
BILLING CODE 4120-01-M; 4830-01-M; 4510-29-M
